ASHLAND OIL INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2918

ASHLAND OIL, INC.
(Exact name of registrant as specified in its charter)

Kentucky 61-0122250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1000 Ashland Drive, Russell, Kentucky 41169
(Address of principal executive offices) (Zip Code)

P.O. Box 391, Ashland, Kentucky 41114
(Mailing Address) (Zip Code)

Registrant's telephone number, including area code (606) 329-3333
Securities registered pursuant to Section 12(b) of the Act:

Name of each
exchange on
Title of each class which registered
------------------- --------------------
Common Stock, par value $1.00 New York Stock Exchange
per share and Chicago Stock Exchange
Rights to Purchase Cumulative New York Stock Exchange
Preferred Stock, and Chicago Stock Exchange
Series of 1987
$3.125 Cumulative Convertible New York Stock Exchange
Preferred Stock
6 3/4% Convertible Subordinated New York Stock Exchange
Debentures, due 2014

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

At October 31, 1994, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was approximately
$1,865,040,000 (which amount does not include $483,909,000 held by
nominees of Society National Bank as Trustee for certain of
Registrant's employee benefit plans) based on the New York Stock

Exchange closing price on October 31, 1994.

At October 31, 1994, there were 60,656,088 shares of
Registrant's Common Stock outstanding. One-half of one Right to
purchase one-tenth of a share of Cumulative Preferred Stock, Series
of 1987, accompanies each outstanding share of Registrant's Common
Stock.

Documents Incorporated by Reference

Portions of Registrant's Annual Report to Shareholders for the
fiscal year ended September 30, 1994 are incorporated by reference
into Parts I and II.

Portions of Registrant's definitive Proxy Statement for its
January 26, 1995 Annual Meeting of Shareholders are incorporated by
reference into Part III.

TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . 1
Corporate Developments . . . . . . . . . . . . 1
Petroleum . . . . . . . . . . . . . . . . . . . 2
SuperAmerica . . . . . . . . . . . . . . . . . 6
Valvoline . . . . . . . . . . . . . . . . . . . 6
Chemical . . . . . . . . . . . . . . . . . . . 8
Construction . . . . . . . . . . . . . . . . . 9
Exploration . . . . . . . . . . . . . . . . . . 10
Coal . . . . . . . . . . . . . . . . . . . . . 13
Other Business . . . . . . . . . . . . . . . . 16
Miscellaneous . . . . . . . . . . . . . . . . . 16
Item 2. Properties . . . . . . . . . . . . . . . . . . 19
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . 20
Item X. Executive Officers of Ashland . . . . . . . . . 20
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters . . . . . . . . . . . 21
Item 6. Selected Financial Data . . . . . . . . . . . . 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . 22
Item 8. Financial Statements and Supplementary Data . . 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . 22
PART III
Item 10. Directors and Executive Officers of the
Registrant. . . . . . . . . . . . . . . . . . . 22
Item 11. Executive Compensation . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . 22

PART I

ITEM 1. BUSINESS

Ashland Oil, Inc. is a Kentucky corporation, organized on
October 22, 1936, with its principal executive offices located at
1000 Ashland Drive, Russell, Kentucky 41169 (Mailing Address: P.O.
Box 391, Ashland, Kentucky 41114) (Telephone: (606) 329-3333). The
terms "Ashland" and the "Company" as used herein include Ashland
Oil, Inc. and its consolidated subsidiaries, except where the
context indicates otherwise.

Ashland's businesses are grouped into six industry segments:
Petroleum, SuperAmerica, Valvoline, Chemical, Construction, and
Exploration. Financial information about these segments for the
five fiscal years ended September 30, 1994, is set forth on Pages
58 and 59 of Ashland's Annual Report to Shareholders for the fiscal
year ended September 30, 1994 ("Annual Report"). In addition,
Ashland is also involved in the coal industry through its 50%
ownership of Arch Mineral Corporation ("Arch") and its 39%
ownership of Ashland Coal, Inc. ("Ashland Coal"). Summarized
financial information for these entities is contained in Note D of
Notes to Consolidated Financial Statements in Ashland's Annual
Report.

Ashland Petroleum is one of the nation's largest independent
petroleum refiners and a leading supplier of petroleum products to
the transportation and commercial fleet industries, other
industrial customers and independent marketers, and to SuperAmerica
for retail distribution. In addition, Ashland Petroleum gathers
and transports crude oil and petroleum products and distributes
petroleum products under the Ashland-R- brand name. SuperAmerica
operates combination gasoline and merchandise stores under the
SuperAmerica-R- and Rich-R- brand names. Valvoline is a marketer of
branded, packaged motor oil and automotive chemicals, filters, rust
preventives and coolants. In addition, Valvoline is engaged in the
"fast oil change" business through outlets operating under the
Valvoline Instant Oil Change-R- and Valvoline Rapid Oil Change-R-
names.

Ashland Chemical distributes industrial chemicals, solvents,
thermoplastics and resins, and fiberglass materials, and
manufactures a wide variety of specialty chemicals and certain
petrochemicals. Construction performs contract construction work,
including highway paving and repair, excavation and grading, and
bridge and sewer construction and produces asphaltic and ready-mix
concrete, crushed stone and other aggregate, concrete block and
certain specialized construction materials in the southern United
States. Exploration explores for, develops, produces and sells
crude oil and natural gas principally in the eastern and Gulf Coast
areas of the United States, explores for and produces crude oil in
Nigeria for export and explores for oil and gas in other
international areas.

Arch, one of the largest producers of low sulfur coal in the
eastern United States, produces steam and metallurgical coal for
sale in the domestic and international markets. Arch's production
comes from surface and deep mines in Illinois, Kentucky, West
Virginia and Wyoming. Ashland Coal produces low-sulfur, bituminous
coal in central Appalachia for sale to domestic and foreign
electric utility and industrial customers. Both Arch and Ashland
Coal market coal mined by independent producers.

At September 30, 1994, Ashland and its consolidated
subsidiaries had approximately 31,600 employees (excluding contract
employees).

CORPORATE DEVELOPMENTS

Ashland recently announced that it has signed an agreement with
Saarbergwerke AG ("Saarberg") granting Ashland the option to
purchase all of the 150 shares of Ashland Coal Class B
Preferred Stock held by Saarberg, and granting Saarberg the option
to require Ashland to purchase such stock. These options are
exercisable during certain periods in February, 1995, and are
subject to the satisfaction of certain conditions, including
appropriate government approvals. The Preferred Stock represents
approximately 15% of the voting power of Ashland Coal and if either
option is exercised, Ashland will own approximately 54% of the
voting stock of Ashland Coal. Ashland currently has no plans to
purchase additional stock of Ashland Coal, other than the Class B
Preferred Stock.

1

On November 3, 1994, the Board of Directors of Ashland voted,
subject to shareholder approval at the 1995 Annual Meeting of
Shareholders, to amend the Company's Second Restated Articles of
Incorporation to change the name of the Company to Ashland Inc.
This change of name is believed by the Board of Directors to be
desirable and in the best interests of Ashland in order to identify
Ashland in a manner that more clearly reflects its unified network
of refining, energy and chemical businesses and yet retains the
historical name of Ashland.

On November 3, 1994, Ashland's Board of Directors approved the
filing with the Securities and Exchange Commission (the "SEC") of a
universal shelf registration statement to allow for offerings from
time to time of up to an aggregate of $600 million in debt and/or
equity securities. It is anticipated this filing will be made in
late December 1994. Any offering of these securities will be made
only by means of a written prospectus.

In November 1994, Ashland Chemical signed a letter of intent
with Aristech Chemical Corporation to acquire Aristech's
unsaturated polyester resins, polyester distribution and maleic
anhydride businesses. The transaction is subject to a number of
conditions, including the execution and delivery of a definitive
purchase agreement and appropriate governmental approvals.

In February 1994, Ashland completed the sale of APAC-Arizona,
Inc., its Arizona highway construction and construction materials
business. The transaction completed Ashland's previously announced
asset divestiture program.

In November 1993, Ashland filed with the SEC a shelf
registration statement to allow for offerings from time to time of
up to an aggregate of $250 million in medium-term notes. Ashland
had previously filed shelf registration statements for $750 million
in medium-term notes. As of November 15, 1994, Ashland had sold
$826 million in medium-term notes. The remaining $174 million in
notes may be sold from time to time as separate series of senior
debt in amounts and at prices and terms to be determined at the
time of sale. The net proceeds of the offerings will be used to
refinance outstanding debt and for other general corporate
purposes.

PETROLEUM

Ashland Petroleum, a division of Ashland, has responsibility
for the operation of Ashland's refineries, the supply and
transportation of Ashland's crude oil requirements, the
transportation and storage of refined petroleum products and the
marketing of a portion of the refined petroleum products.

PETROLEUM REFINING

Ashland Petroleum owns and operates three refineries located in
Catlettsburg, Kentucky; St. Paul Park, Minnesota; and Canton, Ohio.
The approximate capacities of these refineries at September 30,
1994, were as follows:

Crude Oil Capacity
Location of Refinery (In thousands of barrels
per calendar day)*
-------------------- ----------------------------
Catlettsburg, Kentucky . . . . . 213.4
St. Paul Park, Minnesota . . . . 67.1
Canton, Ohio . . . . . . . . . . 66.0
-----
Total . . . . . . . . 346.5
=====
------------
*The term "barrels" when used herein means barrels of 42 gallons
each.

2

Ashland Petroleum's refineries are equipped with efficient
facilities, including crude oil atmospheric and vacuum
distillation, fluid catalytic cracking, catalytic reforming,
desulfurization and sulfur recovery units. Each of these refineries
has the capability to process a wide variety of crude oils,
including low quality/low price crude oils (i.e., high in residuum
and sulfur contents), and to produce normal refinery products,
including asphalt. With the assistance of a 3,000 barrel-per-day MTBE
unit and a partial ownership in an ethanol plant, Ashland Petroleum is
also able to cost effectively produce reformulated gasoline. In addition,
the Catlettsburg refinery is equipped to manufacture lubricating
oils and a wide range of petrochemicals.

The table below shows the average daily number of barrels of
crude oil and other feedstocks processed and the refined products
produced by Ashland Petroleum for the three fiscal years ended
September 30, 1994:

Years Ended September 30
------------------------
1994 1993 1992
---- ---- ----
Total Input (In thousands of barrels per day)
---------------------------------------------
Crude Oil 329.2 326.0 327.1
Other Feedstocks 12.6 13.7 14.2

Refinery Products Produced (In thousands
of barrels per day)
-----------------------------------------
Gasoline 168.0 166.8 169.9
Distillates and Kerosene 90.6 88.6 84.2
Asphalt 29.3 27.4 25.5
Jet and Turbine Fuel 10.9 12.2 14.0
Heavy Fuel Oils 7.7 9.0 10.6
Lubricants 7.6 7.6 7.1
Other 16.8 17.0 20.1

CRUDE OIL SUPPLY

The crude oil processed in Ashland Petroleum's refineries is
obtained from negotiated lease, contract and spot purchases or
exchanges. During fiscal 1994, Ashland Petroleum's negotiated
lease, contract and spot purchases of United States crude oil for
refinery input (including 111,100 barrels per day acquired through
Ashland's Scurlock Permian subsidiary) averaged 115,200 barrels per
day. Purchases from Canada averaged 57,500 barrels per day during
fiscal 1994. The balance of Ashland Petroleum's crude oil
requirements during fiscal 1994 were met largely through purchases
from various foreign national oil companies and traders. Purchases
of foreign crude oil (including Canada) represented 65% of Ashland
Petroleum's crude oil requirements during fiscal 1994 compared to
58% during fiscal 1993.

Ashland's share of Nigerian production will either be sold,
traded or used to help satisfy part of Ashland Petroleum's fiscal
1995 crude oil requirements, depending upon world crude oil prices
and other economic factors. For further information concerning
Nigerian production, see "Exploration-International Operations."
The balance of Ashland Petroleum's crude oil requirements in fiscal
1995 is expected to be met through contract and spot purchases from
United States independent producers and from various foreign
national oil companies and traders as worldwide availability and
prices dictate.

For further information concerning crude oil prices and
imports, see "Miscellaneous-Governmental Regulation and Action-
General."

3

MARKETING OF PETROLEUM AND OTHER PRODUCTS

Ashland Petroleum's principal marketing area for gasoline and
fuel oils includes the Ohio River Valley, the upper Midwest, the
upper Great Plains, the East Coast, and a portion of the
southeastern United States. In addition to gasoline and fuel oils,
Ashland also manufactures and markets liquified petroleum gas,
asphalt and asphaltic products, pitch, base lube stocks, kerosene,
petrochemicals, jet fuels, and residual fuels.

Ashland Petroleum's production of gasoline, kerosene, and light
fuel oils is sold at wholesale through wholesale channels of
distribution, company owned and exchange terminals, Ashland branded
bulk plants and at retail through SuperAmerica. The majority of
these products are sold at wholesale through approximately 90
terminal areas in 23 states. Gasoline is sold at wholesale
primarily to independent marketers, jobbers, and chain retailers
who resell through several thousand retail outlets primarily under
their own names, but also to a limited extent under the Ashland-R-
brand name. Gasoline, kerosene, distillates, and aviation products
are also sold to utilities, railroads, river towing companies,
commercial fleet operators, aviation and airline companies,
governmental agencies and other end users.

Ashland Petroleum also markets petroleum products under the
Ashland-R- brand name through a network of 112 (99 owned and 13
leased) bulk plants located in six states. These plants maintain
inventories of gasoline, distillate, kerosene, motor oils, greases
and other related products. Approximately 122 commission agents
deliver products to Ashland customers from these plants, as well as
from terminals or refineries operated by Ashland. Typical customers
include reseller retail outlets, lessee-dealer retail outlets and
numerous consumer, commercial and farm accounts. Ashland supplies
100 (88 owned and 12 leased) Ashland-R- brand lessee-dealers and
639 reseller outlets. Resellers generally own their locations and
Ashland supplies pumps and signs for their use. Lessee-dealer
outlets are owned or leased by Ashland and leased or subleased to
the dealer. For further information on Ashland's retail marketing
of petroleum products, see "SuperAmerica" and "Valvoline."

In addition to providing crude oil for its own refineries,
Ashland Petroleum, through its Scurlock Permian subsidiary, is
actively engaged in purchasing, selling and trading crude oil in 15
states, principally at Midland, Texas; Cushing, Oklahoma; and St.
James, Louisiana, three of the major distribution points for United
States crude oil.

Ashland Petroleum also produces and markets asphalt cements,
polymerized asphalt, asphalt emulsions, and industrial asphalts in
the United States. Ashland Petroleum markets these products from 24
locations to 22 southern and midwestern states. Additionally,
Ashland Petroleum manufactures petroleum pitch, primarily used in
the graphite electrode, clay target and refractory industries.

Ashland Petroleum produces residual fuels at its three
refineries and markets and sells these products in nine states,
primarily to industrial customers as boiler fuel.

The table below shows the average daily consolidated sales of
petroleum products and crude oil by Ashland Petroleum,
SuperAmerica, Valvoline and Exploration for the three fiscal years
ended September 30:

Years Ended September 30
----------------------------
(In thousands of barrels per day)
1994 1993 1992
----- ----- ----
Gasoline 181.9 182.1 186.5
Crude Oil 142.1 150.3 152.3
Distillates and Kerosene 97.0 93.0 87.0
Asphalt 34.3 31.4 30.5
Jet and Turbine Fuel 10.9 11.2 13.6
Heavy Fuel Oils 8.4 9.7 11.1
Lubricants 14.7 15.6 15.8
Other 23.3 21.3 23.5

Sales of gasoline (excluding excise taxes) represented
approximately 18%, 20% and 21% of Ashland's consolidated sales and
operating revenues (excluding excise taxes) in fiscal years 1994,
1993 and 1992, respectively. Sales of crude oil represented
approximately 8%, 10% and 11% of Ashland's consolidated sales and
operating revenues (excluding excise taxes) in fiscal years 1994,
1993 and 1992, respectively.

4

TRANSPORTATION

Ashland owns, leases, or has an ownership interest in 5,759
miles of active pipeline in 13 states. This network transports
crude oil and refined products to and from terminals, refineries
and other pipelines. This includes 2,256 miles of crude oil
gathering lines, 2,987 miles of crude oil trunk lines, 475 miles of
refined product lines and 41 miles of natural gas liquid lines.

Ashland has an 18.6% stock ownership interest in LOOP INC.
("LOOP"), the only U.S. deep water port facility capable of
receiving crude oil from very large crude carriers and which has a
capacity to off-load 1,000,000 to 1,200,000 barrels per day.
Ashland also has a 21.4% stock ownership interest in LOCAP INC.
("LOCAP") which has a capacity of 1,200,000 barrels per day and a
21.6% undivided ownership interest in the Capline Pipeline System
which has a nominal capacity of 1,175,000 barrels per day. LOCAP
owns a pipeline connecting LOOP and the Capline System that
originates at St. James, Louisiana. These port and pipeline systems
provide Ashland Petroleum with access to common carrier
transportation from the Louisiana Gulf Coast to Patoka, Illinois.
At Patoka, the Capline System connects with other common carrier
pipelines owned or leased by Ashland which provide transportation
to Ashland Petroleum's refineries in Kentucky and Ohio. For
summarized financial statements and information with respect to
advances and transportation payments made by Ashland to LOOP and
LOCAP, see Notes D and G of Notes to Consolidated Financial
Statements in Ashland's Annual Report.

In addition, Ashland owns a 5% undivided ownership interest in
the Rancho Pipe Line System located in Texas and a 33% stock
interest in the Minnesota Pipe Line Company, which owns a crude oil
pipeline in Minnesota. Minnesota Pipe Line Company provides
Ashland Petroleum with access to 270,000 barrels per day of crude
oil common carrier transportation from Clearbrook, Minnesota to
Cottage Grove, Minnesota, which is in the vicinity of Ashland
Petroleum's St. Paul Park, Minnesota refinery.

Ashland Petroleum owns or has an interest in 38 terminal
facilities from which it sells a wide range of petroleum products.
These facilities are supplied by a combination of river barge,
pipeline, truck and rail. Ashland Petroleum also owns or operates
a number of other terminals that are used in connection with the
transportation of petroleum products or crude oil.

Ashland Petroleum's river transportation operations include 8
towboats (6 owned, 2 leased) and 171 barges that transport crude
oil and refined products on the Ohio, Mississippi and Illinois
rivers, their tributaries, and the Intracoastal Waterway.

Ashland Petroleum leases on a long-term basis two 80,000 ton
deadweight tankers which are normally used for third party delivery
of foreign crude oil to the United States. Additional requirements
are met by chartering tankers for individual voyages.

Ashland Petroleum leases rail cars in various sizes and
capacities for movement of petroleum products and chemicals.
Ashland Petroleum also owns a large number of tractor-trailers,
additional trailers, and a large fleet of tank trucks and general
service trucks.

OTHER MATTERS

For information on federal, state and local statutes and
regulations relating to releases into the environment or protection
of the environment, see "Miscellaneous-Governmental Regulation and
Action-Environmental Protection."

For information relating to certain environmental litigation,
see "Legal Proceedings-Environmental Proceedings."

There are traditional seasonal variations in Ashland
Petroleum's sales and operating results. The seasonality that
Ashland Petroleum experiences is due primarily to increased demand
for gasoline during the summer driving season and increased demand
for asphalt from the road paving industry during the last six
months of Ashland's fiscal year. The refining industry experiences
a similar seasonality. For Ashland's fiscal years 1992 to 1994,
refining margins for Ashland Petroleum have averaged $3.86 per
barrel for the six-month periods ended March 31 and $4.12 per
barrel for the six-month periods ended September 30.

5

SUPERAMERICA

SuperAmerica Group, a division of Ashland, conducts retail
petroleum marketing operations. SuperAmerica has retail outlets in
11 states in the Ohio Valley and Upper Midwest under the
SuperAmerica-R- and Rich-R- names. See also "Petroleum-Marketing
of Petroleum and Other Products."

SuperAmerica-R- Stores - SuperAmerica operates 598 (538 owned
and 60 leased) combination gasoline and merchandise stores in 11
states under the SuperAmerica-R- name. These stores are designed
for high volume sales. SuperAmerica stores offer consumers
gasoline, diesel fuel at select locations and a broad mix of other
goods and services such as fresh-baked goods, automated teller
machines, video rentals, automotive accessories and a line of
private-label items. SuperAmerica is also adding to its one-stop
shopping concept by partnering with fast food chains including Taco
Bell and Subway. During fiscal 1994, 40% of the revenues of the
SuperAmerica stores were derived from the sale of merchandise and
60% of such revenues were derived from the sale of gasoline and
diesel fuel.

The SuperAmerica-R- trademark has been registered since 1963.
Other registered trademarks and servicemarks owned by Ashland and
used by SuperAmerica include SuperMom's-R-, The Fresh Choice-TM-
and SuperSoda-R-, used in connection with food products; Injector
Guard-R-, used in connection with gasoline additives; The Express
Pump-R-, used in conjunction with gasoline dispensing equipment;
SuperCare-R-, used in connection with pharmacy services, personal
care and beauty products; and Yours-R- and Sincerely Yours-R-, used
in connection with cigarettes.

SuperAmerica operates warehouse distribution centers in
Bloomington, Minnesota, and Ashland, Kentucky, that distribute
certain merchandise to the stores. SuperAmerica also operates a
commissary in Russell, Kentucky, that produces fresh sandwiches,
salads and other food products for distribution to stores in the
Ohio Valley. A wholly-owned subsidiary of SuperAmerica also
operates a large bakery and commissary in St. Paul Park, Minnesota,
under the name SuperMom's-R-.

In addition to the 598 owned and leased SuperAmerica stores,
SuperAmerica has 28 jobber/franchisees who operate 37 stores in 3
states in the upper Midwest.

Rich-R- Oil - Rich Oil, a division of Ashland, operates 95 (76
owned and 19 leased) Rich-R- retail gasoline outlets in Kentucky,
Ohio and West Virginia under the Rich-R- name. The Rich Oil outlets
generate lower gasoline volumes than the average SuperAmerica
store, primarily because the Rich Oil outlets are generally smaller
and located in less-densely-populated areas.

OTHER MATTERS

Retail marketing "divorcement" legislation and wholesale and
retail pricing regulations have been adopted in some states. They
are proposed from time to time in other states and at the federal
level. If such legislation were adopted at the federal level or in
the states where SuperAmerica sells petroleum products, it could
have a substantial adverse impact.

For information relating to the regulation of underground
storage tanks containing petroleum products, see "Miscellaneous-
Governmental Regulation and Action-Environmental Protection."

VALVOLINE

The Valvoline Company, a division of Ashland, is a marketer of
automotive and industrial oils, automotive chemicals, and
automotive and environmental services, with sales in more than 140
countries. See also "Petroleum-Marketing of Petroleum and Other
Products." Acquired by Ashland in 1950, Valvoline has diversified
its operations in recent years and is comprised of the following
business units:

Valvoline Branded - Branded is Valvoline's largest business
unit, representing 47% of Valvoline's annual sales dollars.
Branded markets motor oils, greases, gear oils, automatic
transmission fluids, antifreeze and oil and air filters primarily
to the U.S. private passenger car and light truck market through a
network of distributors, retailers and direct market operations.
Valvoline is also one of the leading producers of packaged private
label

6

motor oils in the United States. The Branded Commercial Fleet
Sales division markets heavy-duty lubricants to the railroad,
trucking, mining and marine industries.

Although competition is severe, Branded plans to improve market
share through a customer-focused strategy, involvement in
motorsports and a marketing campaign stressing high performance,
quality and value.

Branded plants are supplied with base stocks primarily from
Ashland's 8,500 barrels-per-day lube oil refinery in Catlettsburg,
Kentucky.

Ecogard, Inc. - As of September 30, 1994, Ecogard, Inc. through
its First Recovery division, was collecting used motor oil at an
annual rate of 35 million gallons from a network of automotive
aftermarket retailers and service businesses in 41 states.
Utilizing a "total fluid management" approach, First Recovery
provides an environmental service to Branded customers, collecting
used antifreeze and oil filters as well. In fiscal 1995, First
Recovery will transport most of its collected used oil volume to a
new industrial fuel processing plant owned and operated by Texaco
Inc. near New Orleans, Louisiana.

Valvoline Instant Oil Change ("VIOC") - VIOC, a division of
Ashland, is one of the largest companies in the expanding U.S.
"fast oil change" service business, providing Valvoline with a
significant share of the installed segment of the passenger car and
light truck motor oil market. Incorporation of the Valvoline name
and trademark in VIOC's name, store signage and advertising
provides an ongoing Valvoline presence in the communities in which
VIOC stores are located. As of September 30, 1994, 347 company-
owned service centers were open in 13 states: Georgia, Illinois,
Indiana, Kentucky, Michigan, Minnesota, Mississippi, Missouri, New
York, Ohio, Pennsylvania, Tennessee and Wisconsin. Stores in
Minnesota operate as Valvoline Rapid Oil Change-R-.

Valvoline Instant Oil Change Franchising, Inc. - Valvoline
Instant Oil Change Franchising, Inc., a subsidiary of Ashland,
began selling franchises in 1988 to accelerate Valvoline's growth
in the fast oil-change business. As of September 30, 1994, 137
franchised units (75 of which are in operation) had been sold in 15
states: California, Connecticut, Delaware, Florida, Georgia,
Kentucky, Maryland, Massachusetts, Minnesota, Nebraska, New Mexico,
North Carolina, Pennsylvania, Rhode Island and Texas. A franchise
has also been sold in Puerto Rico. All company-owned and
franchised centers collect used motor oil from do-it-yourselfers as
an environmental service.

Car Care Products Group - In late 1994, Valvoline established a
new Car Care Products Group to manage its growing portfolio of
consumer automotive chemical brands. Valvoline acquired the Zerex-
R- antifreeze brand and a long-term antifreeze feedstock supply
agreement from the BASF Corp. in October 1994. Zerex joined
Pyroil, NAPA and Valvoline's other various private label brands of
automotive chemicals to form the Car Care Products Group. Pyroil
is a major U.S. packager and marketer of refrigerants to the
automotive aftermarket and is increasing its sales of consumer and
professional automotive chemicals. Although refrigerants
containing chlorofluorocarbons will be phased out of production by
the end of 1995, Pyroil is actively supporting an industry
transition to ozone-safe refrigerants. An exclusive agreement
provides Pyroil with an assured supply of new-generation DuPont
SUVA-R- refrigerants.

Valvoline International, Inc. - Valvoline International, Inc.,
a subsidiary of Ashland, markets Valvoline branded products and
TECTYL-R- Rust Preventives worldwide and operates company-owned
affiliates in Australia, Canada, Denmark, Great Britain, the
Netherlands, Sweden, Germany, Switzerland, Austria, France, Italy
and Belgium. Licensees and distributors market products in other
parts of Europe, Central and South America, the Far East, the
Middle East and in certain African countries. Packaging and
blending plants and distribution centers in Australia, Canada,
Denmark, Sweden, Great Britain, the Netherlands and the United
States supply international customers. Through a joint-venture
with The Western India Group, Valvoline will construct a blending
and packaging plant in India in 1995 to supply that market.

Lube Refinery Sales - Valvoline's Lube Refinery Sales division
sells excess base stock production from the Catlettsburg, Kentucky
lube refinery to other U.S. motor oil and industrial oil marketers
as well as to fuel and lube additive companies in the United
States. It also markets Slack Wax, a lube byproduct, through a
network of re-sellers and to other refiners for further processing.
The division is also engaged in private label blending and
packaging for other North American refiners. See "Petroleum-
Petroleum Refining."

The Valvoline-R- trademark was federally registered in 1873 and
is the oldest trademark for a lubricating oil in the United States.
Other important trademarks include Valvoline Instant Oil Change-R-,
TECTYL-R-, Pyroil-R- and Zerex-R-.

7

CHEMICAL

Ashland Chemical Company, a division of Ashland, is engaged in
the manufacture, distribution and sale of a wide variety of
chemical and plastic products. Ashland Chemical owns or leases 42
manufacturing facilities in 10 states and 17 foreign countries and
owns or leases 102 distribution facilities in 34 states and 12
foreign countries.

Ashland Chemical is comprised of the following operations:

DISTRIBUTION

Industrial Chemicals & Solvents ("IC&S") Division - IC&S
markets chemical products and solvents to industrial chemical users
in major markets through distribution centers in the United States,
Canada and Puerto Rico. The division distributes approximately
3,500 chemical products made by many of the nation's leading
chemical manufacturers, a growing number of off-shore producers,
plus petrochemicals from Ashland's refineries. The division
specializes in supplying mixed truckloads and less-than-truckload
quantities to the paint and coatings, industrial and institutional
compounding, automotive, appliance, paper and many other
industries. In addition, the division distributes cosmetic and
pharmaceutical specialty chemicals and food-grade additives and
ingredients. The division also offers customers environmental
services, working in cooperation with major chemical waste disposal
companies.

FRP Supply Division - This division markets to customers in
the reinforced plastics and cultured marble industries mixed
truckload and less-than-truckload quantities of polyester resins,
fiberglass and other specialty reinforcements, catalyst and allied
products from more than 50 distribution locations across the United
States and Mexico.

General Polymers Division - This division markets a broad range
of thermoplastic injection molding and extrusion materials to
processors in the plastics industry through distribution locations
in the United States, Canada, Mexico and Puerto Rico. The division
also provides plastic material transfer and packaging services. The
division represents 22 major plastics producers, with emphasis on
serving customers with mixed truckload and less-than-truckload
quantities of packaged thermoplastics. The basic resins business
unit markets packaged and bulk thermoplastic resins to a variety of
processors in North America.

Ashland Plastics International - This business unit markets a
broad range of thermoplastics to processors outside North America.
Ashland Plastics has distribution centers located in Australia,
Belgium, France, Holland, Ireland, Italy, New Zealand, and the
United Kingdom and exports to Latin America from the United States.

SPECIALTY CHEMICALS

Composite Polymers Division - This division manufactures and
sells a broad range of chemical-resistant, fire-retardant and
general-purpose grades of unsaturated polyester and vinyl ester
resins for the reinforced plastics industry. Key markets include
the automotive, construction and marine industries. The division
has manufacturing plants in Los Angeles, California; Bartow,
Florida; Ashtabula, Ohio; and Philadelphia, Pennsylvania.

Specialty Polymers & Adhesives Division - This division
manufactures and sells specialty liquid AROFENE-R- phenolic resins
and AROTAP-R- phenolic resins for paper impregnation and friction
material bonding; AROSET-R- acrylic polymers for pressure sensitive
adhesives; ISOSET-R- emulsion polymer isocyanate adhesives for
structural wood bonding; PLIOGRIP-R- polyurethane and epoxy
structural adhesives for bonding fiberglass reinforced plastics,
composites, thermoplastics and metals in automotive, recreational,
and industrial applications; EMAWELD-R- induction bonding systems
for thermoplastic materials; PLIOBOND-R- and PLIOSEAL-R-
elastomeric polymer adhesives for commercial roofing applications;
PLIOSEAL-TM- butyl rubber roofing tapes; and VPC-R- vapor curing,
high-performance urethane coatings systems. The division has
manufacturing plants in Calumet City, Illinois; Norwood, New
Jersey; and Ashland, Ohio.

Drew Ameroid Marine Division - This division supplies specialty
chemicals for water and fuel treatment and general maintenance as
well as refrigeration services, sealing products and welding and
refrigerant products to the world's merchant marine fleet. Drew
Ameroid Marine currently provides shipboard technical service for
more than 15,000 vessels from 140 locations serving 800 ports
throughout the world.

8

Electronic Chemicals Division - This division manufactures and
sells a variety of ultra high-purity chemicals for the worldwide
semiconductor manufacturing industry through various manufacturing
locations. The division also custom blends and packages high-
purity liquid chemicals to customer specifications. The division
has manufacturing plants in Newark, California; Milan, Italy;
Easton, Pennsylvania; and Dallas, Texas. The division also enters
into long-term agreements to provide complete chemical management
services, including purchasing, warehousing and delivering
chemicals for in-plant use, for major facilities of large consumers
of high-purity chemicals.

Foundry Products Division - This division manufactures and
sells foundry chemicals worldwide, including a complete line of
foundry binders, core and mold coatings, sand additives, mold
releases, core pastes, and other specialties. The division has two
domestic manufacturing plants located in Cleveland, Ohio. Eighteen
foreign subsidiaries and affiliates manufacture and/or market
foundry and other chemicals. The division has a metals
applications laboratory as part of the company's technical center,
which is used for test castings and mold and core material testing.

Drew Industrial Division - This division supplies specialized
chemicals and consulting services for the treatment of boiler
water, cooling water, steam, fuel and waste streams. The division
also supplies process chemicals and technical services to the pulp
and paper and mining industries. It also supplies additives used
in the manufacture of latex and paints. This division conducts
operations throughout North America, Europe and the Far East
through subsidiaries, joint venture companies and distributors. The
division has manufacturing plants in Kansas City, Kansas; Kearny,
New Jersey; Houston, Texas; Ajax, Ontario, Canada; and Singapore.

PETROCHEMICALS

Petrochemical Division - This division markets aromatic
hydrocarbons, principally cumene, toluene, xylene, and aromatic and
aliphatic solvents and propylene manufactured at facilities located
at the Catlettsburg, Kentucky refinery. The division manufactures
maleic anhydride at Neal, West Virginia, and methanol near
Plaquemine, Louisiana.

OTHER MATTERS

Melamine Chemicals, Inc. ("MCI") - Ashland owns 23% of the
outstanding common stock of MCI, a publicly owned company
(NASDAQ:MTWO). MCI produces melamine at its Donaldsonville,
Louisiana plant and sells it to customers throughout the world.
Melamine is a specialty chemical having numerous industrial and
commercial applications.

For information relating to the reauthorization of the
Superfund Reauthorization Act of 1986 and the Resource Conservation
and Recovery Act, see "Miscellaneous-Governmental Regulation and
Action-Environmental Protection."

CONSTRUCTION

Ashland's construction operations are conducted primarily by
the APAC group of companies which are located in 13 southern
states. APAC is a major provider of publicly funded highway
construction services, privately financed construction projects,
and construction materials. As prime contractor, subcontractor or
joint venture partner, APAC performs such construction work as
paving, repair and resurfacing of highways, urban streets,
roadways, bus lanes, airports, residential developments, shopping
centers, other commercial parking areas, sidewalks, and driveways;
excavation; grading and base work; and certain other activities in
the construction of bridges and structures, sanitary sewers,
drainage facilities and underground utilities. APAC also produces
and sells construction materials such as asphaltic and ready-mix
concrete, crushed stone and other aggregate, and in certain
markets, concrete block and specialized construction materials,
such as architectural block.

To deliver its services and products, APAC utilizes extensive
aggregate-producing properties and construction equipment. It
currently has 15 permanent operating quarry locations, 31 other
aggregate production facilities, 38 ready-mix concrete plants, 144
hot-mix asphalt plants, and a fleet of over 8,000 mobile equipment
units, including heavy construction equipment and transportation-
related equipment.

9

Raw aggregate generally consists of sand, gravel, granite,
limestone and sandstone. About 36% of the raw aggregate produced by
APAC is used in the performance of APAC's own contract construction
work and the production of various processed construction
materials. The remainder is sold to third parties. APAC also
purchases substantial quantities of raw aggregate from other
producers whose proximity to the job site render it economically
feasible. Most other raw materials, such as liquid asphalt,
portland cement and reinforcing steel, are purchased from others.
APAC is not dependent upon any one supplier or customer.

Approximately 60% of APAC's revenues are derived from highway
and other public sector sources. The other 40% is derived from
industrial and commercial customers and other private developers
and contractors.

Climate and weather significantly affect revenues in the
construction business. Due to its location, APAC tends to enjoy a
relatively long construction season. Most of APAC's operating
income is generated during the construction period of May to
October.

Total backlog at September 30, 1994 was $554 million, compared
to $495 million (restated to exclude APAC's Arizona operations
which were sold in February 1994) at September 30, 1993. The
backlog orders at September 30, 1994 are considered firm, and a
major portion is expected to be filled during fiscal 1995.

EXPLORATION

Ashland's oil and gas exploration and production activities are
conducted through wholly owned subsidiaries of Ashland
(collectively referred to as "Ashland Exploration"). Ashland
Exploration is currently engaged in the exploration for and
production of oil and gas in the United States, in the exploration
for and production of oil in Nigeria, and in oil and gas
exploration in other international areas.

For information regarding Ashland Exploration's estimated oil
and gas reserves and other financial data, see Supplemental Oil and
Gas Information on Pages 60 and 61 in Ashland's Annual Report.
Since October 1, 1993, no estimates of Ashland Exploration's total
proved net oil or gas reserves have been filed or included in
reports to any federal authority or agency other than the SEC.

DOMESTIC OPERATIONS

Ashland Exploration has concentrated its domestic drilling and
production efforts in two core areas: the Appalachian Basin and the
Gulf Coast. In addition, minor royalty interests are located
primarily in the Southwest and Midcontinent regions of the United
States.

In the Appalachian Basin, Ashland Exploration's activities
consist primarily of shallow gas development drilling on leaseholds
totaling approximately 807,100 acres in eastern Kentucky and West
Virginia. In fiscal 1994, it drilled 58 net gas wells, excluding 29
net wells which were being drilled at year-end.

Ashland Exploration's exploratory efforts are concentrated
along the Gulf Coast. In fiscal 1994, Ashland Exploration
participated in drilling 13 gross exploratory prospects, resulting
in 4 gas discoveries. At fiscal year-end, an additional 2 gross
exploratory wells were in the process of being drilled. Ashland
Exploration's exploratory leasehold position in the Gulf of Mexico
has risen to 160,000 acres, excluding one block from an August 1994
federal lease sale on which a lease is expected to be issued in
early fiscal 1995.

During fiscal 1994, Ashland Exploration's domestic production
averaged 800 net barrels of oil per day and 94.3 million net cubic
feet of natural gas per day. The average price received during
fiscal 1994 was $14.29 per barrel of oil and $2.42 per thousand
cubic feet (MCF) of gas.

Ashland Exploration owned a working interest in 2,942 gross
(2,655 net) domestic producing wells at September 30, 1994.

10

INTERNATIONAL OPERATIONS

Ashland Exploration currently has rights to international
concessions in Nigeria, Australia, and Morocco. Additional
exploration opportunities are being evaluated in these and other
countries.

In Nigeria, Ashland Exploration's oil production during fiscal
1994 was 18,700 barrels per day from 74,000 acres onshore and
103,000 acres offshore held under a production-sharing contract
with the Nigerian National Petroleum Corporation ("NNPC"), the
Nigerian state-owned petroleum company. The term of this production
sharing contract has been extended until June 12, 1998. Ashland
Exploration plans to initiate exploratory drilling in fiscal 1995
to fulfil the commitment required for the extension of this
production sharing contract. If this exploratory drilling is
successful, the term on this production sharing contract would be
extended until 2013.

Other exploratory efforts in Nigeria will be carried out on two
additional offshore blocks comprising a contract area of
approximately 600,000 acres under another production-sharing
contract with NNPC. The first exploratory well was successful in
fiscal 1994. Additional exploratory drilling is planned for fiscal
1995. Ashland Exploration holds a 50% interest in these blocks.

In other international exploratory activities, Ashland
Exploration has extended its seismic option agreement with ONAREP,
the Moroccan state-owned petroleum company. The agreement covers
1,500,000 acres offshore Morocco, which Ashland Exploration
operates with a 50% interest. In Australia, Ashland Exploration
owns a 50% interest in one exploration permit consisting of 335,000
gross acres and a 25% interest in another exploration permit
consisting of 590,000 gross acres, both of which are located
offshore western Australia. Three unsuccessful exploratory wells
were drilled in Australia in fiscal 1994.

Ashland Exploration's international operations are necessarily
subject to factors beyond its control. Foreign operations may also
be affected by laws and policies of the United States relating to
foreign trade, investment, and taxation.

NET OIL AND GAS PRODUCTION

The following table summarizes net oil and gas production for
the three fiscal years ended September 30, 1994. Net production for
Nigeria is before royalty.

Years Ended September 30
-------------------------
1994 1993 1992
---- ---- -----

Crude Oil (thousand barrels per day)
United States . . . . . . . . . . . .8 1.0 1.0
Nigeria . . . . . . . . . . . . . . 18.7 21.7 25.9
---- ---- ----
Total . . . . . . . . . . 19.5 22.7 26.9
===== ==== ====
Natural Gas (MMCF per day)
United States . . . . . . . . . . . 94.3 99.3 78.3

11

AVERAGE SALES PRICE AND PRODUCTION COST

Ashland Exploration's average sales price per unit and
production cost per unit for crude oil and natural gas for the
three fiscal years ended September 30, 1994, are set forth in the
table below:

United States Nigeria Total
------------------- ------------------- -------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ---- ----

Average sales price
Crude oil (per
barrel)...... $14.29 $17.54 $18.35 $15.01 $17.77 $19.21 $14.98 $17.76 $19.18
Natural gas
(per MCF)..... 2.42 2.45 2.28 - - - 2.42 2.45 2.28
Average production
product cost
(per equivalent
barrel) (1)..... 3.87 3.84 4.83 7.69 7.27 6.39 5.90 5.74 5.84
-----------------

(1) Equivalent barrels computed on a six MCF to one barrel ratio.

GROSS AND NET PRODUCTIVE WELLS

The following table sets forth Ashland Exploration's gross and
net productive wells at September 30, 1994:
Gross Net
------- ------
United States
Oil . . . . . . . . . . . . . . . . . 175 47
Gas . . . . . . . . . . . . . . . . . 2,767 2,608
Nigeria
Oil . . . . . . . . . . . . . . . . . 36 36
----- -----
Total 2,978 2,691
====== ======

These wells include 321 gross wells (308 domestic and 13
international) and 295 net wells (282 domestic and 13
international) which have multiple completions.

TOTAL GROSS AND NET OIL AND GAS PRODUCING AND UNDEVELOPED ACREAGE

The following table sets forth Ashland Exploration's total
gross and net oil and gas producing and undeveloped acreage at
September 30, 1994:

Gross Net Gross Net
Producing Producing Undeveloped Undeveloped
Acreage Acreage Acreage Acreage
--------- --------- --------- ----------
(thousands of acres)

United States. . . . . 1,201 873 726 405
Nigeria. . . . . . . . 177 177 580 290
Morocco. . . . . . . . 1,500 750
Australia. . . . . . . 925 315
----- ----- ----- -----
Total 1,378 1,050 3,731 1,760
===== ===== ===== =====

12

NET PRODUCTIVE AND DRY WELLS DRILLED

Ashland Exploration's net productive and dry wells drilled during
the three fiscal years ended September 30, 1994, are set forth in
the table below:

1994 1993 1992
---- ---- ----
Net Productive Exploratory Wells Drilled
United States . . . . . . . . . . . 2 1 5
International . . . . . . . . . . . 1 0 0
---- ---- ----
Total . . . . . . . . . . 3 1 5
==== ==== ====
Net Dry Exploratory Wells Drilled
United States . . . . . . . . . . . 4 2 3
International . . . . . . . . . . . 1 0 0
---- ---- ----
Total . . . . . . . . . . 5 2 3
==== ==== ====
Net Productive Development Wells Drilled
United States . . . . . . . . . . . 59 84 182
International . . . . . . . . . . . 0 0 0
---- ---- ----
Total . . . . . . . . . . 59 84 182
==== ==== ====
Net Dry Development Wells Drilled
United States . . . . . . . . . . . 1 1 0
International . . . . . . . . . . . 0 0 0
---- ---- ----
Total . . . . . . . . . . 1 1 0
==== ==== ====

COAL

Arch Mineral Corporation ("Arch") - Ashland currently owns 50%
of Arch and has the right to acquire an additional 1.25% of Arch
pursuant to a Put and Call Agreement with an Arch shareholder.
Through its wholly owned subsidiaries, Arch mines, processes,
markets, and transports bituminous coal in the domestic and export
steam and metallurgical markets. An additional wholly owned
subsidiary of Arch owns, controls and manages mineral-bearing
properties throughout the United States. Arch has mines located in
the Appalachian, Midwestern, and Western coal fields with access to
rail, inland waterway and truck transportation networks, including
several of its own transloading facilities. Arch also controls
undeveloped reserves in the San Juan Basin of New Mexico, the Green
River area in southwest Wyoming, southern Illinois, Indiana,
southeast Kentucky, western Virginia and southern West Virginia.

For its fiscal year ended December 31, 1993, Arch sold 17.6
million tons of coal compared to sales of 20.9 million tons and
21.5 million tons in 1992 and 1991, respectively. In 1993, 79% of
Arch's sales were from the production of its wholly owned
independent operating subsidiaries, compared to 82% and 80% in 1992
and 1991, respectively. The remainder of the coal sold in each of
these periods came from brokerage activities or from independent
contractors operating on property controlled by Arch. Surface mines
accounted for 69% of the production in 1993, as compared to 62% and
65% in 1992 and 1991, respectively. In each of these periods, the
remainder of Arch's production came from its underground and auger
mines. Sales under contracts with a duration of more than one year
accounted for 78% of Arch's sales in 1993, compared with 86% and
80% in 1992 and 1991, respectively. Arch's 1993 operations were
significantly and adversely impacted by the United Mine Workers of
America strike discussed on the following page.

As of September 30, 1994, Arch has 33 coal supply contracts of
one year or longer duration. In the nine-months ended September
30, 1994, Arch sold 20.5 million tons of coal, 69% of which was
sold under contracts with a duration of more than one year. During
this period, 74% of Arch's total sales came from the production of
its subsidiaries, while the remaining coal sold came from brokerage
activities or independent contractors operating on properties
controlled by Arch. During this nine-month period, 53% of Arch's
production was from its surface mines and the remainder was from
its underground and auger mines.

13

As of December 31, 1993, Arch owned or controlled estimated
recoverable coal reserves in the proven and probable categories of
approximately 1.6 billion tons, based on an estimate prepared by
Arch. Arch believes a majority of these reserves have a sulfur
content of less than 1.6 pounds of sulfur dioxide and a substantial
portion have a sulfur content of less than 1.2 pounds of sulfur
dioxide per million Btu. Ashland has not made an independent
verification of this information.

Apogee Coal Company ("Apogee"), an independent operating
subsidiary of Arch, is a member of the Bituminous Coal Operators
Association ("BCOA") and a signatory to a collective bargaining
agreement with the United Mine Workers of America ("UMWA") that
expires on August 1, 1998. This contract was ratified on December
14, 1993, after a 219-day strike against certain BCOA members,
including Apogee. In the nine months ended September 30, 1994,
Apogee's sales from captive and contractors mines represented
approximately 54% of Arch's total sales. Two other independent
subsidiaries of Arch are signatories to collective bargaining
agreements with independent employees associations. Employees of
the remainder of Arch's operating subsidiaries are not represented
by labor unions.

On January 31, 1994, Catenary Coal Holdings, Inc., a wholly
owned subsidiary of Arch, acquired from Enirisorse S.p.A., the
stock of Agipcoal Holdings USA, Inc. and Agipcoal America, Inc. On
the same date, certain of the subsidiaries and assets of these
companies were sold to subsidiaries of the Norfolk Southern
Corporation, and Neweagle Industries, Inc. The remaining assets
include mining complexes in Kentucky and West Virginia.

Ashland Coal, Inc. ("Ashland Coal") - Ashland owns
approximately 39% of Ashland Coal, a public company (NYSE:ACI)
which is engaged in the production, transportation, processing and
marketing of bituminous coal produced in eastern Kentucky and
southern West Virginia. The primary emphasis and direction of
Ashland Coal is on the acquisition and development of low-sulfur
steam coal reserves.

Saarbergwerke A.G., a coal producer, coal trader, and utility
company owned jointly by the Government of Germany (74%) and the
State of Saarland (26%), owns approximately a 15% interest in
Ashland Coal, and Carboex International Ltd., a subsidiary of
Sociedad Espanola De Carbon Exterior, S.A., a coal supply firm
controlled by entities of the Government of Spain, owns
approximately a 10% interest in Ashland Coal. The remaining 36% of
Ashland Coal is owned by the public.

For its fiscal year ended December 31, 1993, Ashland Coal and
its independent operating subsidiaries sold 16 million tons of
coal, as compared to 19.1 and 14.3 million tons sold in 1992 and
1991, respectively. Of the total number of tons sold during fiscal
1993, approximately 57% was under long-term contracts, as compared
to 66% for 1992 and 67% for 1991, with the balance being sold on
the spot market. In fiscal 1993, Ashland Coal and its independent
operating subsidiaries sold 2.1 million tons of coal in the export
market, compared to 3.9 million tons in 1992 and 3.8 million tons
in 1991. Approximately 61%, 71%, and 71% of total revenues for
1993, 1992, and 1991, respectively, were derived from long-term
contracts. For the year ended December 31, 1993, Ashland Coal's
independent operating subsidiaries produced approximately 14.2
million tons of coal, as compared to 16.7 and 12.2 million tons for
1992 and 1991, respectively. In addition, Ashland Coal purchased
for resale approximately 1.6 million tons of coal during 1993 and
approximately 2.0 million tons of coal during each of 1992 and
1991.

For the nine months ended September 30, 1994, Ashland Coal and
its independent operating subsidiaries sold 14.8 million tons of
coal. Of the total number of tons sold during the nine months ended
September 30, 1994, 63% was under long-term contracts. These sales
accounted for approximately 65% of Ashland Coal's total revenues
for the nine-month period. Of the 14.8 million tons sold during the
nine-month period, 1.4 million tons were sold in the export market.
For the nine months, Ashland Coal's independent operating
subsidiaries produced approximately 13.9 million tons of coal and
purchased approximately 1.0 million tons for resale.

14

Ashland Coal's consolidated results for 1993 were significantly
affected by a selective strike by the United Mine Workers of
America from May to December 1993 against the operations of two
subsidiaries of Ashland Coal's Dal-Tex Coal Corporation subsidiary
("Dal-Tex") and the operations of Ashland Coal's Hobet Mining, Inc.
subsidiary ("Hobet"). These Dal-Tex subsidiaries and Hobet were
signatories to the National Bituminous Coal Wage Agreement of 1988.
On December 14, 1993, UMWA members ratified the National Bituminous
Coal Wage Agreement of 1993, and thereafter the UMWA miners
returned to work at the Dal-Tex and Hobet operations.

Ashland Coal's Mingo Logan Coal Company subsidiary ("Mingo
Logan"), Mingo Logan's Mountaineer Mining Company and Bearco
divisions and certain contract miners are parties to a proceeding
to determine whether Mingo Logan's employees should be deemed
jointly employed with the contract miners' employees or whether the
Mingo Logan and contract miners' employees are employed by
different employers. The outcome of the proceeding would determine
for purposes of voting on union representation (if such vote is
required by applicable labor law) whether the Mingo Logan employees
may vote separately, or will be required to vote with employees of
Mingo Logan's contract miners.

Substantially all of Ashland Coal's coal properties are in
eastern Kentucky and southern West Virginia and are controlled by
lease. Most of these leases run until the exhaustion of minable and
merchantable coal. The remaining leases have primary terms ranging
from one to 40 years, with many containing options to renew.
Royalties paid to lessors are either on a fixed price per ton basis
or on a percentage of the gross sales price basis.

As of December 31, 1993, Ashland Coal estimates that its
subsidiaries controlled approximately 723 million tons of
recoverable reserves in the proven and probable categories. Based
upon limited information obtained from preliminary prospecting,
drilling and coal seam analysis, Ashland Coal estimates that a
substantial percentage of this coal has a sulfur content of 1% or
less. Ashland has not made an independent verification of this
information. The extent to which reserves will eventually be mined
depends upon a variety of variables, including future economic
conditions and governmental actions affecting both the mining and
marketability of low-sulfur steam coal.

Other Matters - Arch and Ashland Coal are subject to
environmental regulations, including the Surface Mining Control and
Reclamation Act of 1977, the Clean Water Act, the Resource
Conservation and Recovery Act and the Clean Air Act, as well as
related federal environmental regulations and similar state
enactments. In addition, the Federal Mine Safety and Health Act of
1977 ("MSHA") imposes health and safety standards on all mining
operations. Regulations under MSHA are comprehensive and affect
numerous aspects of mining operations, including the training of
mine personnel, mining procedures, blasting and the equipment used
in mining operations. Arch and Ashland Coal believe that they are
in substantial compliance with all applicable environmental and
MSHA requirements. These requirements are not expected to have a
material adverse impact on Arch's or Ashland Coal's competitive
position.

Arch and Ashland Coal are subject to the provisions of the Coal
Industry Retiree Health Benefit Act of 1992. This legislation
provides for the funding of medical and death benefits for certain
retired members of the UMWA through premiums to be paid by assigned
operators, transfers from an overfunded pension trust established
for the benefit of retired UMWA members, and transfers from the
Abandoned Mine Lands Fund, which is funded by a federal tax on coal
production. The effect of this legislation on the earnings and
financial conditions of Arch and Ashland Coal is not expected to be
significant.

For information relating to acid rain legislation, see
"Miscellaneous-Governmental Regulation and Action-Environmental
Protection."

15

OTHER BUSINESS

Ashland, through a subsidiary, Ashland Ethanol, Inc. ("AEI"),
has a 50% interest in a partnership that owns an ethanol plant
located in South Point, Ohio. The partnership is comprised of AEI
and subsidiaries of Ohio Farm Bureau Federation, Inc., Publicker
Industries Inc. and UGI Corporation. The plant began operation in
September 1982 and is currently producing at an annual rate of
approximately 65 million gallons of ethanol. In addition, the
plant produced about 180 million tons of distillers dried grain in
fiscal 1994. In 1981 the United States Department of Energy entered
into a cooperative agreement with the partnership under which it
advanced approximately $24.5 million in connection with the
construction of this plant which will, except under certain
circumstances, have to be repaid starting in 1996. The partnership
also has a Farmers Home Administration ("FmHA") guaranteed loan and
a working capital loan. Because of past concerns about the
venture's long-term viability, Ashland wrote off its investment in
AEI in fiscal 1986 and provided a reserve for the estimated impact
of expected losses.

AECOM Technology Corporation ("AECOM"), a 25% owned affiliate
of Ashland, provides a wide array of design, engineering,
architectural, planning, operations and maintenance, construction
and construction management, development, environmental and other
technical and professional services to industrial, commercial and
government clients. AECOM is headquartered in Los Angeles,
California, and performs services through offices located
throughout the world.

MISCELLANEOUS

GOVERNMENTAL REGULATION AND ACTION

Ashland's operations are affected by political developments and
laws and regulations, such as restrictions on production,
restrictions on imports and exports, the maintenance of specified
reserves, price controls, tax increases and retroactive tax claims,
expropriation of property, cancellation of contract rights,
environmental protection controls and laws pertaining to workers'
health and safety. As discussed in part below, a number of bills
have been enacted or proposed by the United States Congress and
various state governments which have or could have a significant
impact on Ashland.

General - As a refiner, Ashland is substantially affected by
changes in world crude oil prices. Many world and regional events
can have substantial effects on world crude oil prices and can
increase volatility in world markets. Ashland expects to be able to
acquire adequate supplies of crude oil at competitive prices.
However, Ashland cannot predict whether foreign and United States
petroleum product price levels will permit its refineries to
operate on a profitable basis. Neither can it predict the effect on
its operations and financial condition from possible further
changes in the Organization of Petroleum Exporting Countries
("OPEC") policies or in actions by the President of the United
States and the Congress, from changes in taxes and federal
regulation of the oil and gas business in the United States, or
from other developments that cannot be foreseen.

The stability of Ashland's crude oil supply from foreign
sources is subject to factors beyond its control, such as military
conflict between oil-producing countries, the possibility of
nationalization of assets, embargoes of the type imposed by OPEC in
1973, internal instability in one or more oil-producing countries,
and rapid increases in crude oil prices. Although Ashland will
continue, for economic reasons, to rely upon foreign crude oil
sources for a substantial portion of its crude oil supply, the
extent of operation in the domestic crude oil market afforded by
Scurlock Permian Corporation will assist in offsetting the adverse
effects frequently associated with market volatility. See
"Petroleum-Crude Oil Supply" for Ashland's crude oil processing
requirements.

Imported crude oil is subject at present to payment of duty,
which is 10.5 cents per barrel for crudes over 25 API gravity (2.1 cents
per barrel for Canadian imports) and 5.25 cents per barrel for crudes below
25 API gravity (1.05 cents per barrel for Canadian imports). Imported
crude oil is also subject to a customs users fee of .17% of the
value of the crude oil. For information with respect to tax
assessments on crude oil, see also "Environmental Protection."

16

Environmental Protection - Federal, state and local statutes
and regulations relating to the protection of the environment have
a significant impact on the conduct of Ashland's businesses.
Ashland's capital and operating expenditures for air, water and
solid waste control facilities are summarized below.

Years Ended September 30
------------------------
(In millions) 1994 1993 1992
---------------- ---- ----- -----
Capital expenditures $ 63 $137 $162
Operating expenditures 140 148 138

At September 30, 1994, Ashland's reserves for environmental
assessment and remediation efforts amounted to $167 million,
reflecting Ashland's most likely estimates of the costs which will
be incurred over an extended period to remediate identified
environmental conditions for which costs are reasonably estimable.

During fiscal 1995 and 1996, based on current environmental
regulations, Ashland estimates capital expenditures for air, water
and solid waste control facilities to be $70 million and $85
million, respectively. Expenditures for investigatory and remedial
efforts in future years are subject to the uncertainties associated
with environmental exposures, including identification of new
environmental sites and changes in laws and regulations and their
application. Such expenditures, however, are not expected to have a
material adverse effect on Ashland's consolidated financial
position, cash flow or liquidity, but could have a material adverse
effect on results of operations in a particular quarter or fiscal
year. With respect to the effect of such expenditures on Ashland's
competitive position in its industries, it is not expected that
Ashland's expenditures will be affected by the legislation and
regulations relating to the environment in a manner that is
significantly different from the anticipated effect on its
competitors in the petroleum or chemical industries.

The United States Environmental Protection Agency ("USEPA") and
the states have adopted regulations and laws concerning underground
storage tanks covering, among other things, registration of tanks,
release detection, corrosion protection, response to releases,
closure of, and financial responsibility for, underground storage
tank systems.

The Superfund Reauthorization Act of 1986 ("Superfund")
provided for the establishment of a fund to be used for a waste
clean-up program administered by the USEPA. The law provides for
five separate taxes: (i) a petroleum tax on domestic crude oil and
on imported crude oil equalized at 9.7 cents per barrel plus a 5 cents per
barrel oil spill tax, as more fully described below, (ii) a
chemical feedstock tax, (iii) a tax on imported chemical
derivatives, and (iv) an "environmental tax" based on corporate
alternative minimum taxable income. Ashland paid approximately $19
million in Superfund taxes during fiscal 1994. Superfund, which
provides for cleanup of certain hazardous waste sites, is expected
to be reauthorized during the 104th Congress. The reauthorized act
is expected to provide for fair-share allocation of liability,
improve cleanup remedy selection, and reduce insurance recovery
litigation all of which should make the program more effective.
However, it is uncertain at this time exactly what the revisions
will be, or if they will result in significant savings.

Effective October 1, 1993, the USEPA reduced by 90 percent,
from 0.5 to 0.05 percent by weight, the allowable sulfur level in
diesel fuel used on highways. The USEPA's action was designed to
provide cleaner fuel that will permit reduced particulate emissions
from truck engines. Ashland has invested more than $250 million in
additional sulfur removal facilities, and is currently producing
and providing such ultra-low-sulfur diesel fuel for on-highway use.

The Oil Pollution Act of 1990 ("OPA 90") established a $1
billion trust fund to cover cleanup-related costs of oil spills
after the responsible party's liability limits have been reached,
or where the responsible party is otherwise unidentifiable or
unable to pay. The trust fund is financed, when depleted below
specified levels, through an excise tax of 5 cents per barrel on
domestic crude oil and imported petroleum oil products (pursuant to
the Superfund Reauthorization Act of 1986). On July 1, 1993, the
oil spill tax was suspended because the Treasury Department
estimated that the spill liability trust fund would reach its
suspension point at the close of the second

17

quarter of 1993. Effective July 1, 1994, the oil spill tax was
reinstated. OPA 90 subjects spillers to strict liability for removal
costs and damages (including natural resource damages) resulting
from oil spills, and requires the preparation and implementation
of spill-response plans at designated vessels and facilities.
Additionally, OPA 90 requires that new tank vessels entering or
operating in domestic waters be equipped with double hulls, and
that existing tank vessels without double hulls be retrofitted
or removed from domestic service according to a phase-out
schedule. While Ashland does not believe that compliance with
implementing regulations will have a material adverse effect
on the company's results of operations, a complete assessment
of the financial implications of OPA 90 will be performed when
all implementing regulations are final.

On July 1, 1994, the United States Coast Guard issued interim
final regulations dealing with financial responsibility for water
pollution (vessels) under OPA 90 and the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA").
The regulations require self-propelled tank vessel owners and
operators to maintain evidence of financial responsibility,
effective December 28, 1994, sufficient to meet their potential
liability defined under OPA 90 and CERCLA for spills of oil or
hazardous substances. The Director, Coast Guard National Funds
Center has granted permission to Ashland to self-insure the
financial responsibility amount for liability purposes for
Ashland's ocean tankers as provided in OPA 90. Ashland is
currently assessing the impact the regulations will have upon
Ashland and its crude oil purchasing and transportation costs and
strategies.

The Federal Clean Air Act requires the refining industry to
market cleaner-burning, reformulated gasoline ("RFG") beginning
January 1, 1995 in nine specified metropolitan areas across the
country. Ashland does not directly supply gasoline in any of the
nine metropolitan areas. However, several urban locations within
Ashland's marketing area have opted into the RFG program. Ashland
currently believes it will be able to meet expected demand for RFG
in its marketing area. The Clean Air Act also requires the
refining industry to supply 39 carbon monoxide (CO) non-attainment
areas with gasoline containing 2.7 weight percent oxygen for four
winter months each year. Upon being re-designated CO attainment,
several of these areas are seeking to opt-out of the oxygenated
gasoline requirements. Ashland believes it will have a continuing
need to directly supply this fuel only at St. Paul Park, Minnesota,
whose primary market is a CO non-attainment area. Ashland believes
it has or has access to ample oxygenate to meet this requirement.

The Clean Air Act also contains acid rain provisions which
require substantial reductions in sulfur dioxide emissions by power
plants in the United States which should favor low-sulfur coal
producers. Both Ashland Coal and Arch have significant low-sulfur
reserves and should benefit from expected higher demand for low-
sulfur coal.

The Resource Conservation and Recovery Act ("RCRA"), which
requires "cradle to grave" management of hazardous waste, is slated
to be reauthorized by Congress, although timing of such
reauthorization is uncertain. Reauthorization issues may include an
expansion of hazardous waste program coverage, recycling, used oil,
and solid waste management. These same issues may be addressed in
additional USEPA rulemakings unrelated to reauthorization efforts.
It is anticipated that both the reauthorization and other future
rulemakings will result in increased environmental compliance
costs, but the amount of such increase is uncertain at this time.

RESEARCH

Ashland conducts a program of research and development directed
toward the invention and improvement of products and processes and
also toward the improvement of environmental controls for its
existing facilities. It maintains its primary research facilities
in Catlettsburg, Kentucky, and Dublin, Ohio. For information about
research and development costs, see Note A of Notes to Consolidated
Financial Statements in Ashland's Annual Report.

COMPETITION

In all of its operations, Ashland is subject to intense
competition both from companies in the respective industries in
which it operates and from products of companies in other
industries. In all of these segments, competition is based
primarily on price, with factors such as reliability of supply,
service and quality being considered. Ashland Petroleum competes
primarily with other domestic refiners and, to a lesser extent,
with

18

imported products. However, Ashland Petroleum enjoys a
geographic advantage for products in its primary marketing areas.
While some integrated competitors have sources of controlled crude
production, few competitors in Ashland Petroleum's market areas are
significantly crude self-sufficient. SuperAmerica competes with
major oil companies, independent oil companies and independent
marketers. Virtually all of SuperAmerica's refined products are
supplied by Ashland Petroleum. SuperAmerica maintains one of the
lowest net operating cost structures in the industry and enjoys
gasoline and merchandise sales per store exceeding the convenience
store industry average based on the 1994 National Association of
Convenience Store State of the Industry Survey.

Valvoline competes primarily with domestic oil companies and,
to a lesser extent, with international oil companies on a worldwide
basis. Valvoline's brand recognition and increasing market share
in the fast oil-change market are important competitive factors.
Ashland Chemical competes in a number of chemical distribution,
specialty chemical and petrochemical markets. Its chemicals and
solvents distribution businesses compete with national, regional
and local companies throughout North America. Its plastics
distribution businesses compete worldwide. Ashland Chemical's
specialty chemicals businesses compete globally in selected niche
markets and compete largely on the basis of technology and service
while holding proprietary technology in virtually all their
specialty chemicals businesses. Petrochemicals are largely
commodities, with pricing and quality being the most important
factors. The majority of the business for which APAC competes is
obtained by competitive bidding. An important competitive factor
in Ashland Exploration's domestic production activity is the
ability of its exploration staff to identify potential natural gas
prospects, obtain exploration rights and formulate and complete
plans for the development of properties. Similarly, competitive
factors that are important for Ashland Exploration's international
production include its experience in identifying prospects and
developing and operating properties. The coal industry is highly
competitive, and Arch and Ashland Coal compete (principally in
price, location and quality of coal) with each other and with a
large number of other coal producers, some of which are
substantially larger and have greater financial resources and
larger reserve bases than them.

ITEM 2. PROPERTIES

Ashland's corporate headquarters and the principal offices of
Ashland Petroleum are located in Russell, Kentucky. Principal
offices of other segments are located in Lexington, Kentucky
(SuperAmerica and Valvoline); Dublin, Ohio (Chemical); Atlanta,
Georgia (Construction); and Houston, Texas (Exploration). All of
these offices are leased for various terms ranging from 13 to 72
years, including renewal options. Ashland's principal
manufacturing, marketing and other materially important physical
properties are described under the appropriate segment under Item
1. See also the statistical data included under "Exploration" and
"Coal" in Item 1 and Supplemental Oil and Gas Information on Pages
60 and 61 in Ashland's Annual Report. Additional information
concerning certain leases may be found in Note G of Notes to
Consolidated Financial Statements in Ashland's Annual Report. Such
information is incorporated in this Item by reference.

ITEM 3. LEGAL PROCEEDINGS

Environmental Proceedings - (1) As of September 30, 1994,
Ashland was subject to 72 notices received from the USEPA
identifying Ashland as a "potentially responsible party" ("PRP")
under CERCLA and the Superfund Amendment and Reauthorization Act
("SARA") for potential joint and several liability for cleanup
costs in connection with alleged releases of hazardous substances
from various waste treatment or disposal sites. These sites are
currently subject to ongoing investigation and remedial activities,
overseen by the USEPA in accordance with procedures established
under CERCLA and SARA regulations, in which Ashland may be
participating as a member of various PRP groups. Generally, the
type of relief sought by the USEPA includes remediation of
contaminated soil and/or groundwater, reimbursement for the costs
of site cleanup or oversight expended by the USEPA, and/or long-
term monitoring of environmental conditions at the sites. Ashland
also receives notices from state environmental agencies pursuant to
similar state legislation. Ashland carefully monitors the
investigatory and remedial activity at many of these sites. Based
on its experience with site remediation, its familiarity with
current environmental laws and regulations, its analysis of the
specific hazardous substances at issue, the existence of other
financially viable PRPs and its current estimates of investigatory,
clean-up and monitoring costs at each site, Ashland believes that
its liability at these sites, either individually or

19

in the aggregate, after taking into account established reserves,
will not have a material adverse effect on Ashland's consolidated
financial position, cash flow or liquidity but could have a material
adverse effect on results of operations in a particular quarter or
fiscal year. Estimated costs for these matters are recognized in
accordance with generally accepted accounting principles governing
probability and the ability to reasonably estimate future costs.
For additional information regarding these matters, see
"Governmental Regulation and Action-Environmental Protection."

(2) Ashland received a Notice of Potential Liability from the
Commonwealth of Pennsylvania regarding a crude oil spill incident
in the Delaware River in July 1994 involving the M/V Kentucky,
which Ashland charters under a long-term bareboat charter.

El Paso Dispute - On March 11, 1993, a complaint was filed by
El Paso Refinery, L.P., against Scurlock Permian Corporation
("SPC"), a wholly owned subsidiary of Ashland, in the District
Court of El Paso County, Texas. El Paso Refinery, L.P., is
currently in Chapter 7 bankruptcy. Plaintiff alleges that SPC
wrongfully breached certain duties under a contract to supply crude
oil. Plaintiff further alleges violations of Texas usury law,
common law fraud and duress and seeks substantial damages. In an
apparent companion case filed the same day by individual plaintiffs
(two officers of El Paso Refining, Inc., the general partner of El
Paso Refinery, L.P.), damages are sought against SPC and others
based upon the execution by plaintiffs of promissory notes in
connection with the financing of the refinery. Ashland and SPC
believe these complaints to be without merit and intend to defend
them vigorously. SPC is a creditor in the El Paso bankruptcy
proceeding and had filed a proof of claim for approximately $39
million against the bankrupt estate. As of November 8, 1994, SPC
had received approximately $20 million from the liquidation of
collateral. Ashland believes its current reserves are adequate to
cover any shortfall that could be sustained in the bankruptcy
proceeding.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders through
the solicitation of proxies or otherwise, during the quarter ended
September 30, 1994.

ITEM X. EXECUTIVE OFFICERS OF ASHLAND

The following is a list of Ashland's executive officers, their
ages and their positions and offices during the last five years
(listed alphabetically as to Senior Vice Presidents who are members
of Ashland's core management group, other Senior Vice Presidents,
Administrative Vice Presidents and other executive officers.)

John R. Hall (age 62) is Chairman of the Board of Directors,
Chief Executive Officer and Director of Ashland and has served in
such capacities since 1981, 1981 and 1968, respectively.

Paul W. Chellgren (age 51) is President and Chief Operating
Officer and Director of Ashland and has served in such capacities
since 1992. During the past five years, he has also served as
Senior Vice President and Chief Financial Officer of Ashland.

James R. Boyd (age 48) is Senior Vice President of Ashland and
Group Operating Officer - Ashland Exploration, Inc., Arch Mineral
Corporation, Ashland Services Company and APAC, Inc. Mr. Boyd has
served as Senior Vice President since 1989 and as Group Operating
Officer for the above companies since 1990, with the exception of
APAC for which he assumed responsibility as of October 1, 1993.
During the past five years, he has also served as Vice President of
Ashland and President of Ashland Exploration, Inc.

John A. Brothers (age 54) is Senior Vice President of Ashland
and Group Operating Officer - Ashland Chemical Company,
SuperAmerica Group and The Valvoline Company and has served in such
capacities since 1984 and 1988, respectively.

Thomas L. Feazell (age 57) is Senior Vice President, General
Counsel and Secretary of Ashland and has served in such capacities
since 1992, 1981 and October 1992, respectively. During the past
five years he has also served as Administrative Vice President of
Ashland.

J. Marvin Quin (age 47) is Senior Vice President and Chief
Financial Officer of Ashland and has served in such capacities
since 1992. During the past five years, he has also served as
Administrative Vice President and Treasurer of Ashland.

20

Robert E. Yancey, Jr. (age 49) is Senior Vice President of
Ashland and Group Operating Officer - Ashland Petroleum Company and
South Point Ethanol and President of Ashland Petroleum Company and
has served in such capacities since 1986, 1988, and 1986,
respectively. During the past five years, he also served as Group
Operating Officer of APAC, Inc.

Harry M. Zachem (age 50) is Senior Vice President - Public
Affairs and has served in such capacity since 1988.

John D. Barr (age 47) is Senior Vice President of Ashland and
President of The Valvoline Company and has served in such
capacities since 1989 and 1987, respectively. During the past five
years he has also served as Vice President of Ashland.

David J. D'Antoni (age 49) is Senior Vice President of Ashland
and President of Ashland Chemical Company and has served in such
capacities since 1988.

John F. Pettus (age 51) is Senior Vice President of Ashland and
President of SuperAmerica Group and has served in such capacities
since 1989 and 1988, respectively. During the past five years he
has also served as Vice President of Ashland.

Charles F. Potts (age 50) is Senior Vice President of Ashland
and President of APAC, Inc. and has served in such capacities since
1992. During the past five years he has also served as Senior Vice
President and Chief Operating Officer and Regional Vice President
of APAC.

G. Thomas Wilkinson (age 56) is Senior Vice President of
Ashland and President of Ashland Exploration, Inc. and has served
in such capacities since 1992 and 1990, respectively. During the
past five years he has also served as Vice President of Ashland,
Executive Vice President of Ashland Exploration, Inc. and Senior
Vice President of Ashland Exploration, Inc.

Kenneth L. Aulen (age 45) is Administrative Vice President and
Controller of Ashland and has served in such capacity since 1992.
During the past five years he has also served as Auditor and
Assistant Controller of Ashland.

Philip W. Block (age 47) is Administrative Vice President -
Human Resources of Ashland and has served in such capacity since
1992. During the past five years he has also served as Vice
President - Corporate Human Resources.

John W. Dansby (age 49) is Administrative Vice President and
Treasurer of Ashland and has served in such capacities since 1992.
During the past five years he has also served as Ashland's Vice
President of Planning.

William R. Sawran (age 49) is Vice President of Ashland, Chief
Information Officer and President of Ashland Services Company and
has served in such capacities since 1994 and 1984 respectively.

Fred E. Lutzeier (age 42) is Auditor of Ashland and has served
in such capacity since December 1992. During the past five years he
has also served as Vice President and Controller of Arch Mineral
Corporation.

Each executive officer (other than Vice Presidents who are
appointed by Ashland's management) is elected by the Board of
Directors to a term of one year, or until his successor is duly
elected, at the annual meeting of the Board of Directors, except in
those instances where the officer is elected at other than an
annual meeting of the Board of Directors, in which case his tenure
will expire at the next annual meeting of the Board of Directors
unless he is re-elected.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS

There is hereby incorporated by reference the information
appearing under the caption "Management's Discussion and Analysis-
Quarterly Financial Information" on Page 40 in Ashland's Annual
Report.

21

At September 30, 1994, there were approximately 25,500 holders
of record of Ashland's Common Stock. Ashland Common Stock is listed
on the New York and Chicago stock exchanges (ticker symbol ASH) and
has trading privileges on the Boston, Cincinnati, Pacific,
Philadelphia and Amsterdam stock exchanges.

ITEM 6. SELECTED FINANCIAL DATA

There is hereby incorporated by reference the information
appearing under the caption "Five Year Selected Financial
Information" on Page 57 in Ashland's Annual Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

There is hereby incorporated by reference the information
appearing under the caption "Management's Discussion and Analysis"
on Pages 34 to 40 in Ashland's Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

There is hereby incorporated by reference the consolidated
financial statements appearing on Pages 41 through 55, the
supplemental information appearing on Pages 58 through 61, and the
information appearing under the caption "Management's Discussion
and Analysis-Quarterly Financial Information" on Page 40 in
Ashland's Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

There has been no change in Ashland's independent auditors
during the two fiscal years ended September 30, 1994.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

There is hereby incorporated by reference the information
under the caption "Election of Directors" in Ashland's
definitive Proxy Statement for its January 26, 1995 Annual Meeting
of Shareholders, which was filed with the SEC within 120 days
after September 30, 1994 ("Proxy Statement"). See also the list of
Ashland's executive officers and related information under
"Executive Officers of Ashland" in Item X herein.

ITEM 11. EXECUTIVE COMPENSATION

There is hereby incorporated by reference the information to
appear under the captions "Executive Compensation" and
"Compensation of Directors" in Ashland's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

There is hereby incorporated by reference the information to
appear under the caption "Election of Directors" and the
information regarding the ownership of securities of Ashland in
Ashland's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is hereby incorporated by reference the information to
appear under the caption "Compensation Committee Interlocks and
Insider Participation" in Ashland's Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

(a) DOCUMENTS FILED AS PART OF THIS REPORT

(1) and (2) Financial Statements and Financial Schedules

The consolidated financial statements and financial schedules
of Ashland presented or incorporated by reference in this report
are listed in the index on Page 27.

(3) Exhibits
3.1 - Second Restated Articles of Incorporation of Ashland,
as amended to May 18, 1993.

22

3.2 - Bylaws of Ashland, as amended to March 17, 1994.
4.1 - Ashland agrees to provide the SEC, upon request, copies
of instruments defining the rights of holders of long-
term debt of Ashland, and all of its subsidiaries for
which consolidated or unconsolidated financial
statements are required to be filed with the SEC.
4.2 - Indenture, dated as of August 15, 1989, as amended and
restated as of August 15, 1990, between Ashland and
Citibank, N.A., as Trustee (filed as Exhibit 4(a) to
Ashland's 10-K for the fiscal year ended September 30,
1991, and incorporated herein by reference).

The following Exhibits 10.1 through 10.17 are compensatory plans
or arrangements or management contracts required to be filed as
exhibits pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.

10.1 - Amended Stock Incentive Plan for Key Employees of
Ashland Oil, Inc. and its Subsidiaries.
10.2 - Ashland Oil, Inc. Deferred Compensation and Stock
Incentive Plan for Non-Employee Directors (filed as
Exhibit 10(c).18 to Ashland's Form 10-Q for the quarter
ended December 31, 1993, and incorporated herein by
reference).
10.3 - Ashland Oil, Inc. Director Retirement Plan (filed as
Exhibit 10(c).3 to Ashland's Form 10-K for the fiscal
year ended September 30, 1988, and incorporated herein
by reference).
10.4 - Eighth Amended and Restated Ashland Oil, Inc.
Supplemental Early Retirement Plan for Certain Key
Executive Employees (filed as Exhibit 10(c).4 to
Ashland's Form 10-K for the fiscal year ended September
30, 1992, and incorporated herein by reference).
10.5 - Ashland Oil, Inc. Amended Performance Unit Plan.
10.6 - Ashland Oil, Inc. Incentive Compensation Plan (filed as
Exhibit 10(c).6 to Ashland's
10-K for the fiscal year ended September 30, 1993, and
incorporated herein by reference).
10.7 - Ashland Oil, Inc. Deferred Compensation Plan for Key
Employees (filed as Exhibit 10(c).7 to Ashland's Form
10-K for the fiscal year ended September 30, 1988, and
incorporated herein by reference).
10.8 - Ashland Oil, Inc. ERISA Forfeiture Plan (filed as
Exhibit 10(c).8 to Ashland's 10-K for the fiscal year
ended September 30, 1989, and incorporated herein by
reference).
10.9 - Ashland Oil, Inc. Deferred Compensation Plan for ERISA
Forfeitures (filed as Exhibit 10(c).9 to Ashland's 10-K
for the fiscal year ended September 30, 1991, and
incorporated herein by reference).
10.10 - Ashland Oil, Inc. Director Death Benefit Program (filed
as Exhibit 10(c).10 to Ashland's 10-K for the fiscal
year ended September 30, 1990, and incorporated herein
by reference).
10.11 - Ashland Oil, Inc. Salary Continuation Plan (filed as
Exhibit 10(c).11 to Ashland's Form 10-K for the fiscal
year ended September 30, 1988, and incorporated herein
by reference).
10.12 - Forms of Ashland Oil, Inc. Executive Employment
Contract between Ashland Oil, Inc. and certain
executive officers of Ashland (filed as Exhibit
10(c).12 to Ashland's 10-K for the fiscal year ended
September 30, 1989, and incorporated herein by
reference).
10.13 - Form of Indemnification Agreement between Ashland Oil,
Inc. and each member of its Board of Directors (filed
as Exhibit 10(c).13 to Ashland's 10-K for the fiscal
year ended September 30, 1990, and incorporated herein
by reference).
10.14 - Ashland Oil, Inc. Nonqualified Excess Benefit Pension
Plan (filed as Exhibit 10(c).14 to Ashland's Form 10-K
for the fiscal year ended September 30, 1988, and
incorporated herein by reference).
10.15 - Ashland Oil, Inc. Long-Term Incentive Plan.

23

10.16 - Ashland Oil, Inc. Directors' Charitable Award Program
(filed as Exhibit 10(c).16 to Ashland's Form 10-K for
the fiscal year ended September 30, 1991, and
incorporated herein by reference).
10.17 - Ashland Oil, Inc. 1993 Stock Incentive Plan.

11 - Computation of Earnings Per Share (appearing on Page 33
of Ashland's Form 10-K for the fiscal year ended
September 30, 1994).
13 - Portions of Ashland's Annual Report to Shareholders,
incorporated by reference herein, for the fiscal year
ended September 30, 1994.
21 - List of Subsidiaries.
23 - Consent of Ernst & Young, independent auditors.
24 - Power of Attorney, including resolutions of the Board
of Directors.
27 - Financial Data Schedule
Upon written or oral request, a copy of the above exhibits will
be furnished at cost.

(b) REPORTS ON FORM 8-K

None

24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

ASHLAND OIL, INC.
(Registrant)

By: /s/ Kenneth L. Aulen
-------------------------------
(Kenneth L. Aulen, Administrative
Vice President and Controller)

Date: December 8, 1994

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant, in the capacities indicated, on December
8, 1994.

Signatures Capacity
---------- ---------

/s/ John R. Hall Chairman of the Board of Directors,
--------------------------------- Chief Executive Officer
John R. Hall and Director

/s/ J. Marvin Quin Senior Vice President and
--------------------------------- Chief Financial Officer
J. Marvin Quin

/s/ Kenneth L. Aulen Administrative Vice President,
--------------------------------- Controller and Principal
Kenneth L. Aulen Accounting Officer

* Director
---------------------------------
Thomas E. Bolger

* Director
---------------------------------
Samuel C. Butler

* Director
---------------------------------
Frank C. Carlucci

* Director
---------------------------------
Paul W. Chellgren

* Director
---------------------------------
James B. Farley

* Director
---------------------------------
Edmund B. Fitzgerald

* Director
---------------------------------
Mannie L. Jackson

25

* Director
---------------------------------
Patrick F. Noonan

* Director
---------------------------------
Jane C. Pfieffer

* Director
---------------------------------
Michael D. Rose

* Director
---------------------------------
William L. Rouse, Jr.

* Director
---------------------------------
Robert B. Stobaugh

* Director
---------------------------------
James W. Vandeveer

By: /s/ Thomas L. Feazell
----------------------------
Thomas L. Feazell
Attorney-in-Fact

Date: December 8, 1994

26

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES

Page
Consolidated financial statements and supplemental
information:
Statements of consolidated income . . . . . . . . . . . . *
Consolidated balance sheets . . . . . . . . . . . . . . . *
Statements of consolidated common stockholders' equity . . *
Statements of consolidated cash flows . . . . . . . . . . *
Notes to consolidated financial statements . . . . . . . . *
Five year information by industry segment . . . . . . . . *
Supplemental oil and gas information . . . . . . . . . . . *
Management's discussion and analysis-Quarterly financial
information . . . . . . . . . . . . . . . . . . . . . . . *

Consolidated financial schedules:
V- Property, plant and equipment . . . . . . . . . 29
VI- Accumulated depreciation, depletion and
amortization of property, plant and equipment . . 30
VIII- Valuation and qualifying accounts . . . . . . . 31
IX- Short-term borrowings . . . . . . . . . . . . . 32
------------------

*The consolidated financial statements appearing on Pages 41
through 55, the supplemental information appearing on Pages 58
through 61 and the information appearing under the caption
"Management's Discussion and Analysis-Quarterly Financial
Information" on Page 40 in Ashland's Annual Report are incorporated
by reference in this Annual Report on Form 10-K.

Schedules other than those listed above have been omitted because
of the absence of the conditions under which they are required or
because the information required is shown in the consolidated
financial statements or the notes thereto. Separate financial
statements of unconsolidated affiliates are omitted because each
company does not constitute a significant subsidiary using the 20%
tests when considered individually. Summarized financial
information for such affiliates is disclosed in Note D of Notes to
Consolidated Financial Statements in Ashland's Annual Report.

27

REPORT OF INDEPENDENT AUDITORS

We have audited the consolidated financial statements and
schedules of Ashland Oil, Inc. and subsidiaries listed in the
accompanying index to financial statements and financial schedules
(Item 14(a)). These financial statements and schedules are the
responsibility of Ashland's management. Our responsibility is to
express an opinion on these financial statements and schedules
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 listed in the
accompanying index to financial statements (Item 14(a)) present
fairly, in all material respects, the consolidated financial
position of Ashland Oil, Inc. and subsidiaries at September 30,
1994, and 1993, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended September 30, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

As discussed in Note A to the consolidated financial statements,
in fiscal 1992 Ashland changed its methods of accounting for
postretirement benefits other than pensions and for income taxes.

Louisville, Kentucky Ernst & Young LLP
November 2, 1994

28

Ashland Oil, Inc. and Subsidiaries
Schedule V - Property, Plant and Equipment

----------------------------------------------------------------------------------------------------------------
Other additions (deductions)
(In millions) Balance at Retirements ------------------------------------- Balance
beginning and Operations at end
of year Additions transfers acquired Divestitures Other-net of year
----------------------------------------------------------------------------------------------------------------

Year ended September 30, 1994
Petroleum $2,790 $155 $ (20) $ 1 $ (15) $ - $2,911
SuperAmerica 440 39 (20) - - - 459
Valvoline 250 25 (3) 1 - - 273
Chemical 573 61 (7) 6 - - 633
Construction 582 45 (4) 12 (107) - 528
Exploration 924 41 (22) - - - 943
Corporate 146 10 (5) - - - 151
----------------------------------------------------------------------------------------------------------------
$5,705 $376 $ (81) $ 20 $(122) $ - $5,898
================================================================================================================
Year ended September 30, 1993
Petroleum $2,662 $230 $ (14) $ - $ (88) $ - $2,790
SuperAmerica 517 25 (22) - (80) - 440
Valvoline 238 21 (7) - - (2) 250
Chemical 547 51 (19) - (6) - 573
Construction 562 43 (20) - (3) - 582
Exploration 894 42 (12) - - - 924
Corporate 145 20 (19) - - - 146
----------------------------------------------------------------------------------------------------------------
$5,565 $432 $ (113) $ - $(177) $(2) $5,705
================================================================================================================
Year ended September 30, 1992
Petroleum $2,432 $273 $ (22) $(1) $ (20) $ - $2,662
SuperAmerica 486 37 (7) 5 - (4) 517
Valvoline 222 19 (3) - - - 238
Chemical 488 47 (13) 25 - - 547
Construction 545 42 (21) 3 (7) - 562
Exploration 835 67 (17) 9 - - 894
Corporate 158 19 (32) - - - 145
----------------------------------------------------------------------------------------------------------------
$5,166 $504 $(115) $41 $ (27) $(4) $5,565
================================================================================================================

29

Ashland Oil, Inc. and Subsidiaries
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment

------------------------------------------------------------------------------------------------------------------
(In millions) Balance at Depreciation, Retirements Balance
beginning depletion and and at end
Classification of year amortization(1) transfers Divestitures of year
------------------------------------------------------------------------------------------------------------------

Year ended September 30, 1994
Petroleum $1,296 $131 $(16) $ (8) $1,403
SuperAmerica 185 27 (15) - 197
Valvoline 79 15 2 - 96
Chemical 280 37 (8) - 309
Construction 412 39 (5) (81) 365
Exploration 610 35 (14) - 631
Corporate 73 11 (3) - 81
------------------------------------------------------------------------------------------------------------------
$2,935 $295 $(59) $(89) $3,082
==================================================================================================================
Year ended September 30, 1993
Petroleum $1,242 $123 $ (9) $(60) $1,296
SuperAmerica 199 28 (15) (27) 185
Valvoline 71 13 (5) - 79
Chemical 260 35 (12) (3) 280
Construction 390 44 (20) (2) 412
Exploration 583 36 (9) - 610
Corporate 73 11 (11) - 73
------------------------------------------------------------------------------------------------------------------
$2,818 $290 $(81) $(92) $2,935
==================================================================================================================
Year ended September 30, 1992
Petroleum $1,138 $121 $(17) $ - $1,242
SuperAmerica 172 31 (4) - 199
Valvoline 60 13 (2) - 71
Chemical 236 35 (11) - 260
Construction 369 44 (19) (4) 390
Exploration 558 42 (17) - 583
Corporate 69 11 (7) - 73
------------------------------------------------------------------------------------------------------------------
$2,602 $297 $(77) $ (4) $2,818
==================================================================================================================

[FN]
(1) Includes amounts charged to general corporate expenses.

30

Ashland Oil, Inc. and Subsidiaries
Schedule VIII - Valuation and Qualifying Accounts

---------------------------------------------------------------------------------------------------------------------
(In millions) Balance at Provisions Balance
beginning charged to Reserves Other at end
Description of year earnings utilized changes of year
---------------------------------------------------------------------------------------------------------------------

Year ended September 30, 1994
Reserves deducted from asset accounts
Accounts receivable $20 $11 $ (8)(1) $ - $23
Inventories 5 3 (2) - 6
---------------------------------------------------------------------------------------------------------------------
Year ended September 30, 1993
Reserves deducted from asset accounts
Accounts receivable $18 $13 $ (9)(1) $(2) $20
Inventories 9 2 (6) - 5
---------------------------------------------------------------------------------------------------------------------
Year ended September 30, 1992
Reserves deducted from asset accounts
Accounts receivable $18 $30 $(30)(1) $ - $18
Inventories 6 6 (3) - 9
---------------------------------------------------------------------------------------------------------------------

(1) Uncollected amounts written off, net of recoveries of $2 million in 1994, $3 million in 1993 and $2 million in 1992.

31

Ashland Oil, Inc. and Subsidiaries
Schedule IX - Short-Term Borrowings
------------------------------------------------------------------------------------------------------------------------
Amount Outstanding
(In millions) Weighted -------------------------- Weighted
average Maximum average
Balance interest at any Average interest
at end rate at end month end during rate during
Category of short-term borrowings of year of year during year year(1) year(2)
------------------------------------------------------------------------------------------------------------------------

Year ended September 30, 1994
Notes payable to banks $ 57 5.1% $ 69 $ 26 4.1%
Commercial paper 15 5.0% 40 6 4.4%
------------------------------------------------------------------------------------------------------------------------
Year ended September 30, 1993
Notes payable to banks $ 42 3.3% $165 $ 87 3.3%
Commercial paper 35 3.4% 111 40 3.3%
------------------------------------------------------------------------------------------------------------------------
Year ended September 30, 1992
Notes payable to banks $146 3.6% $165 $108 4.3%
Commercial paper 89 3.5% 89 45 4.4%
------------------------------------------------------------------------------------------------------------------------

(1) Average is based on daily outstanding balances of short-term borrowings.
(2) Weighted average is based on interest expense on short-term borrowings divided by average short-term borrowings
outstanding.

32

Ashland Oil, Inc. and Subsidiaries
Exhibit 11 - Computation of Earnings (Loss) Per Share
Years Ended September 30

-----------------------------------------------------------------------------------------------------------------------
(In millions except per share data) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------

Primary earnings (loss) per share
Income (loss) available to common shares
Net income (loss) $ 197 $ 142 $ (336)
Ashland Coal, Inc. (ACI) equity income and Ashland's share of
ACI's cumulative effect of accounting changes (net of income
taxes) - (25) (4)
Ashland's share of ACI primary earnings
per share (net of income taxes) - 23 4
Dividends on convertible preferred stock (19) (6) -
-----------------------------------------------------------------------------------------------------------------------
$ 178 $ 134 $ (336)
-----------------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding
Average common shares outstanding 60 60 60
Common shares issuable upon exercise of stock options 1 - -
Share adjustment for prepaid contribution to leveraged
employee stock ownership plan (LESOP) - (1) (2)
-----------------------------------------------------------------------------------------------------------------------
61 59 58
-----------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share $2.94 $2.26 $(5.75)
=======================================================================================================================
Earnings (loss) per share assuming full dilution
Income (loss) available to common shares
Net income (loss) $ 197 $ 142 $ (336)
ACI equity income and Ashland's share of ACI's cumulative
effect of accounting changes (net of income taxes) - (25) (4)
Ashland's share of ACI earnings per share assuming
full dilution (net of income taxes) - 21 4
Interest on convertible debentures (net of income taxes) 5 6 -
-----------------------------------------------------------------------------------------------------------------------
$ 202 $ 144 $ (336)
-----------------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding
Average common shares outstanding 60 60 60
Common shares issuable upon
Exercise of stock options 1 1 -
Conversion of debentures 2 3 -
Conversion of preferred stock 9 3 -
Share adjustment for prepaid contribution to LESOP - (1) (2)
-----------------------------------------------------------------------------------------------------------------------
72 66 58
------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share $2.79 $2.20 $(5.75)
========================================================================================================================

33