ARABIAN SHIELD DEVELOPMENT CO - 10-K Annual Report

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Form 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

(Mark One)

[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1995

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ________________ to _________________
Commission file number 0-6247

ARABIAN SHIELD DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)

DELAWARE 75-1256622
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

10830 North Central Expressway
Suite 175 75231
Dallas, Texas (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (214) 692-7872

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.10 per share
(Title of Class)

Indicate by check mark whether the registrant (l) 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
---- ----
2
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. []

Number of shares of registrant's Common Stock, par value $0.10 per
share, outstanding as of March 18, 1996: 19,928,494.

The aggregate market value on March 18, 1996 of the registrant's
voting securities held by non-affiliates was $36,321,388.

DOCUMENTS INCORPORATED BY REFERENCE

(a) Selected portions of the registrant's Annual Report to
Stockholders for the year ended December 31, 1995. - Parts II
and IV

(b) Selected portions of the registrant's definitive Proxy
Statement for the Annual Meeting to be held May 6, 1996. -
Part III
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PART I

Item 1. Business.

General

Arabian Shield Development Company (the "Company") was organized as a
Delaware corporation in 1967 and is principally engaged in the business of
developing its undeveloped mineral properties. None of the undeveloped mineral
properties are currently producing and significant capital expenditures will be
necessary before any commercial operations are commenced. In an updated full
bank feasibility study of the Al Masane lease area, which is under a 30- year
mining lease to the Company, conducted in 1994 by an independent mining
consulting firm, the consultants estimate the total capital costs of the Al
Masane project to be $81.3 million. The Company will diligently pursue the
financing of the project so that commercial production can begin as
contemplated in the updated feasibility study. There can be no assurance that
adequate capital for the project can be obtained in order for commercial
production to begin as contemplated. The ultimate recovery of mineral
exploration and development costs of the Company's other mineral properties
cannot presently be determined.

The Company, through its indirect wholly-owned subsidiary, South
Hampton Refining Company ("South Hampton"), owns and operates a petroleum
refinery which is the Company's only significant revenue producing asset.
South Hampton has scheduled short-term and current portions of long-term debt
obligations which exceed its ability to repay from cash on hand and internally
generated funds. To satisfy its current debt obligations in an orderly manner,
South Hampton will need to renew certain debt obligations, achieve an increase
in cash flow from the refinery and/or receive funds from the Company from
future sales of the Company's Common Stock. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations for
further discussion of these matters.

Saudi Arabian Activities. On May 22, 1993, the Company was granted a
30-year mining lease covering a 44 square kilometer area in the Al Masane area
in southwestern Saudi Arabia. National Mining Company, a private Saudi company
("National Mining"), which previously had a 50% interest in the joint venture
formed to explore and develop the Al Masane area, relinquished its rights to
the mining lease and assigned them to the Company. The mining lease agreement
stipulates that the Company is obligated to relinquish 50% equity in the
project to a Saudi public stock company to be formed when profits are
established in accordance with Article (20) of the mining lease agreement.
National Mining has orally advised the Company that it has relinquished its
rights in all other areas in Saudi Arabia and assigned them to the Company.

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The Company has held exploration licenses for the Wadi Qatan and Jebel
Harr areas in Saudi Arabia. The exploration licenses by their terms have
expired, and although Saudi Arabian government officials have orally advised
the Company that the licenses will be extended as long as mineral exploration
is being carried out on the areas which they cover, formal extensions from the
government have not been obtained and there can be no assurance that the
Company's license rights will be honored. The Company is planning to apply for
formal extensions of these licenses in 1996. Although the exploration licenses
were awarded jointly to the Company and National Mining, the exploration work
on the license areas has been carried on exclusively by the Company.

In May 1993, the Company had discussions with Chevron Chemical Company
regarding the Company's proposal to purchase 5,000 barrels per day of mixed
pentanes from an Aromax(R) petrochemical project to be built in Jubail, Saudi
Arabia by Chevron Chemical in a joint venture with Saudi Venture Capital Group
(SVCS). The Company and some Saudi joint venture partners, all of whom are
directors and/or stockholders of the Company, contemplate building a processing
plant located next to the Aromax(R) plant in Saudi Arabia. As proposed, the
Company would have a 25% interest in the joint venture. Chevron Chemical
advised the Company by letter in July 1993 that Chevron Chemical and SVCS have
jointly agreed to commit to supply the joint venture's proposed pentane project
with up to 5,000 barrels per day of mixed pentane feedstock. Engineering and
marketing studies of the project have been made by outside consultants which
reflect positive results. Planning has begun toward the construction and
operation of the Aromax(R) plant and the joint venture's processing plant but
was delayed during 1995 because of the absence of a firm commitment for the
feedstock supply to the Aromax(R) plant. The Company will begin applying to
the Saudi government for a license for the project when the Aromax(R) project
receives final approval from the Saudi government.

In December 1993, the Company commissioned Sherritt Ltd. of Fort
Saskatchewan, Canada, to prepare a conceptual engineering design for a proposed
zinc refinery based on Sherritt's two stage pressure leach process, to be built
by the Company and Saudi partners at the Red Sea port of Yanbu, Saudi Arabia.
The refinery would have the capacity to produce 100,000 tonnes of slab zinc per
year, with elemental sulfur as a by-product. Sherritt Ltd. completed the study
in May 1994 which contains a proposed flow sheet that has been commercialized
and designed for a state of the art zinc refinery. Sherritt's zinc pressure
leach technology provides significant advantages over other existing zinc
production processes, including having the reputation as the most favored
technology for environmental considerations. In the study Sherritt concludes,
after considering all of the presently, identifiable elements, that these
elements offer a strong potential for the project and enhance the concept.
Sherritt encouraged the Company to carry out further studies toward the
implementation of the project.

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United States Activities. American Shield Refining Company, a wholly
owned subsidiary of the Company (the "Refining Company"), owns all of the
capital stock of Texas Oil and Chemical Co. II, Inc. ("TOCCO"). TOCCO owns all
of the capital stock of South Hampton, and, indirectly through South Hampton,
owns all of the capital stock of Gulf State Pipe Line Company, Inc. ("Gulf
State"). South Hampton owns and operates a petroleum refinery near Silsbee,
Texas. Gulf State owns and operates three pipelines which connect the South
Hampton Refinery to a natural gas line, to South Hampton's truck and rail
loading terminal and to a marine terminal owned by an unaffiliated third party.
The Company also owns all of the capital stock of American Shield Coal Company
(the "Coal Company") and beneficially owns approximately 55%, and directly owns
approximately 46%, of the capital stock of an inactive Nevada mining company,
Pioche-Ely Valley Mines, Inc. ("Pioche-Ely Valley").

Al Masane Project

Prior Feasibility Studies. In the years following the granting of the
exploration licenses in August 1971, substantial geological and geophysical
work was accomplished on the Al Masane and Wadi Qatan license areas. Core
drilling on the licensed areas and studies conducted by independent consulting
firms indicated that the copper, zinc, gold and silver prospects at Al Masane
had a chance of being put into production sooner than the nickel prospect at
Wadi Qatan. Metallurgical tests also showed difficulty in separating the
nickel at Wadi Qatan. During 1977, a pre- feasibility mining study was conduct
at Al Masane by the mining consulting firm of Watts, Griffis and McOuat of
Toronto, Canada ("WGM"). WGM concluded that the Al Masane prospect should be
further developed and recommended an extensive development program for the
area.

Phase I of the development program recommended by WGM for Al Masane
was completed in April 1981 and involved underground development in the form of
a decline (700 meters) and tunnels (3,100 meters) parallel to the ore bodies
from where extensive underground core drilling was done to prove the ore
reserves. The project was financed for the most part with an $11 million
interest-free loan from the Saudi Arabian government (Ministry of Finance).
After completion of Phase I, the Company's consultants concluded that
sufficient ore reserves had been established to justify a full bank feasibility
study to determine the economic potential of establishing a commercial mining
and ore treatment operation at Al Masane. The study was conducted principally
by WGM, assisted by SNC/GECO of Montreal, Canada in engineering and costing.
The consultants concluded in their 1982 study that the Al Masane deposits would
support commercial production of copper, zinc, gold and silver and recommended
implementation of Phase II of the Al Masane development program, which involves
the construction of mining, ore treatment and support facilities. WGM
reevaluated the Al Masane project in September 1984 and concluded that the

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cumulative effect of the factors considered in the reevaluation was positive.

Additional exploration work conducted at Al Masane and substantial
changes in metal prices and capital and operating costs occurring since 1984
led the Company to request WGM to reevaluate the project in early 1989. The
additional exploration occurring after 1984 in the Al Houra and Moyeath zones
resulted in a better definition of and addition to these zones. Consequently,
the consultants revised their reserve estimates. Some of the reserves
previously defined as possible were reclassified as proven or probable. Based
on its reevaluation of the Al Masane project, WGM again concluded that under
the most realistic scenarios the proposed mining operation was economically
viable and had the potential to provide a satisfactory return on investment.

In May 1992, WGM, at the Company's request, revised its cash flow
projections for the Al Masane project based on then current metal prices. The
cash flow projections were positive.

In both the 1989 reevaluation and the 1992 cash flow projections, WGM
continued to regard Al Masane as having high potential for the discovery of
additional ore zones.

1994 Feasibility Study. Following the granting of the mining lease to
the Al Masane area on May 22, 1993, the Company commissioned WGM to prepare a
new fully bankable feasibility study for presentation to financial institutions
in connection with obtaining financing for the project. The feasibility study
includes more metallurgical work incorporating advances in grinding of the ore;
incorporation of the latest advances in technology and reagents developed
during the past ten years; incorporation of new mill designs and the latest
water recycling methods; investigation into the shipping and marketing of zinc
and copper concentrates; and an economic analysis of the project. The
feasibility study contains specific recommendations to insure that the
construction of the project is accomplished as expeditiously and economically
as possible. Engineering design and costing of the project was done by Davy
International of Toronto, Canada. The feasibility study cost the Company
approximately $1 million and was presented to the Company on July 22, 1994.

The Al Masane ore is located in three mineralized zones known as
Saadah, Al Houra and Moyeath. The following table sets forth a summary of the
diluted minable, proven and probable ore reserves at the Al Masane project,
along with the estimated average grades of these reserves:

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==============================================================================================================
Reserve Copper Zinc Gold Silver
Zone (Tonnes) (%) (%) (g/t) (g/t)
==============================================================================================================

Saadah 3,872,400 1.67 4.73 1.00 28.36

Al Houra 2,465,230 1.22 4.95 1.46 50.06

Moyeath 874,370 0.88 8.92 1.29 64.85
--------- ---- ---- ---- -----
Total 7,212,000 1.42 5.31 1.19 40.20
- --------------------------------------------------------------------------------------------------------------

For purposes of calculating, proven and probable reserves, a dilution
of 5% at zero grade on the Saadah zone and 15% at zero grade on the Al Houra
and Moyeath zones was assumed. A mining recovery of 80% has been used for the
Saadah zone and 88% for the Al Houra and Moyeath zones. Mining dilution is the
amount of wallrack adjacent to the ore body which is included in the ore
extraction process.

Proven reserves are those mineral deposits for which quantity is
computed from dimensions revealed in outcrops, trenches, workings or
drillholes, and grade is computed from results of detailed sampling. For ore
deposits to be proven, the sites for inspection, sampling and measurement must
be spaced so closely and the geologic character must be so well defined that
the size, shape, depth and mineral content of reserves are well established.
Probable reserves are those for which quantity and grade are computed from
information similar to that used for proven reserves, but the sites for
inspection, sampling and measurement are farther apart or are otherwise less
adequately spaced. However, the degree of assurance, although lower than that
for proven reserves, must be high enough to assume continuity between points of
observation.

A review by WGM of the equipment and process flowsheet contained in
the 1982 feasibility study prepared by WGM indicated that new technology
developed during the past ten years could be used to reduce the capital cost
and improve the metallurgical recoveries. In particular, the use of
semi-autogenous grinding to reduce the capital cost of the grinding section and
developments in reagents were believed to hold the greatest potential for
improving the economies of the project. A detailed metallurgical testwork
program was undertaken by Lakefield Research in 1994 to address potential
improvements and provide detailed design criteria for the concentrator design.
Results from this testwork program showed that copper recovery could be
improved by 5.7% and zinc recoveries improved by 13% compared to the 1982
results.

The metallurgical studies conducted on the ore samples taken from the
zones indicated that 87.7% of the copper and 82.6% of the

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zinc could be recovered in copper and zinc concentrates. Overall, gold and
silver recovery from the ore was estimated to be 77.3% and 81.3%, respectively,
partly into copper concentrate and partly as bullion through cyanide processing
of zinc concentrates and mine tailings.

A test program to evaluate the economies of the cyanidation of the
zinc concentrate and tailings in order to improve gold and silver recoveries
found gold and silver recoveries to range from 50% to 77%. To recover gold and
silver from the zinc concentrate and tailings, WGM recommended that a
cyanidation plant be included in the process flowsheet. Dore bullion would be
produced. WGM concluded that the inclusion of a cyanidation plant would make a
positive contribution to the economies of the project under the base
conditions.

The mining and milling operation recommended by WGM for Al Masane
would involve the production of 2,800 tonnes of ore per day (700,000 tonnes per
year), with a mine life of over ten years. Annual production is estimated to
be 34,900 tonnes of copper concentrate (25% copper per tonne) containing
precious metal and 58,000 tonnes of zinc concentrate (54% zinc per tonne). The
construction of mining, milling and infrastructure facilities is estimated to
take 18 months to complete. The total capital cost to bring the Al Masane
project into production is estimated to be $81.3 million. This cost includes
the pre-production development of the mine, the construction of a 2,000 tonne
per day concentrator, infrastructure with a 300 man camp facility and the
installation of a cyanidation plant to increase the recovery of precious metals
from the deposit. Project power requirements will be met by diesel generated
power.

WGM recommended that the Al Masane reserves be mined by trackless
mining equipment using either cut-and-fill or open-stopping methods depending
on the shape and location of each ore body. Once the raw ore is mined, it
would be subjected to a grinding and treating process resulting in three
products to be delivered to smelters for further refining. These products are
zinc concentrate, copper concentrate and dore bullion. The copper concentrate
will contain valuable amounts of gold and silver. Total output per year is
estimated to be 22,000 ounces of gold and 800,000 ounces of silver. After
smelter refining process, the metals could be sold by the Company or the
smelter for the Company's account in the open market.

WGM prepared an economic analysis of the project utilizing cash flow
projections. The cash flow projection for a base case was made by WGM based on
the assumption that 50% of the financing of the project will come from the
Saudi Industrial Development Fund, which charges 2.5% service charge, 25% from
commercial loans at an interest rate of 5% and 25% from equity financing. The
cash flow projection includes the repayment of the $11 million loan outstanding
to the Saudi government in one payment at the end of

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the mine life. Based on these assumptions, and assuming the average prices of
metal over the life of the mine to be $1.00 per pound for copper, $0.60 per
pound for zinc, $400 per ounce of gold and $6.00 per ounce of silver, WGM's
economic analysis of the base case shows the project will realize an internal
rate of return of 14% to the project, a rate of return of 11.9% and a net cash
flow of $26.6 million to the equity investors in the new Saudi public stock
company, and a net cash flow of $37 million to the Company. Other cash flow
scenarios calculated to show the effect of various opportunities and risks
associated with the project were also prepared. Assuming the mine begins
commercial production as contemplated in the feasibility study, the Company
would not pay any income tax to the Saudi government for the first five years.
In the feasibility study, WGM recommends that the Company make a decision to
bring the Al Masane mine into production.

In the feasibility study, WGM states that there is potential to find
more reserves within the lease area, as the ore zones are all open at depth.
Further diamond drilling, which will be undertaken by the Company, is required
to quantify the additional mineralization associated with these zones. A
significant feature of the Al Masane ore zones is that they tend to have a much
greater vertical plunge than strike length; relatively small surface exposures
such as the Moyeath zone are being developed into sizeable ore tonnages by
thorough and systematic exploration. Similarly, systematic prospecting of the
small gossans in the area could yield significant tonnages of new ore.

Project Financing and Mining Lease. Until the profitability of the
project is established, the Company plans to form a joint venture with a Saudi
limited liability company owned by Saudi Arabian investors to initially own and
operate the project when approval is received for a loan from the Saudi
Industrial Development Fund which was applied for on September 30, 1995. As
contemplated, the mining lease would be transferred so that the Company and the
Saudi limited liability company would each own a 50% interest therein.
Pursuant to the mining lease agreement, when the profitability of the project
is established, the Company is obligated to form a Saudi public stock company
with the Petroleum and Mineral Organization ("Petromin"), the official mining
and petroleum company of the Saudi Arabian government. The Company will own
50% of the shares of the Saudi public stock company and Petromin no more than
25% of the shares. The remaining shares will be offered for sale in Saudi
Arabia pursuant to a public subscription. In consideration for its receiving
shares in the Saudi public stock company, the Company will transfer title to
the mining lease to the Saudi public stock company, including responsibility
for the repayment of the $11 million loan from the Saudi Arabian government and
the other obligations specified in the mining lease. In December 1994, the
Company received instructions from the Office of the Minister of Petroleum and
Mineral Resources stating that it is possible for the Company to form the Saudi
public stock company without Petromin but that the sale of stock to

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the Saudi public could occur only after two years of profits from commercial
operations of the mine. The instructions added that Petromin will have the
right to purchase shares in the Saudi public stock company any time it desires.

Pursuant to these instructions, in March 1995 the Company retained
Carlyle SEAG ("Carlyle") as the Company's financial advisor in connection with
the Al Masane mining project. In February 1996, the agreement with Carlyle was
effectively terminated by mutual consent. An agreement with a Saudi Arabian
financial advisor is currently being negotiated.

While the Company agreed in the mining lease not to request a loan
which would fund 50% of the capital cost of the project from the Saudi Public
Development Fund, on September 30, 1995 the Company applied for a similar loan
from the Saudi Industrial Development Fund. The Saudi Industrial Development
Fund makes interest-free loans to industrial projects in Saudi Arabia and
charges a 2.5% service fee. The Company believes that it may also be able to
finance the remaining cost of the project through arrangements with suppliers
and equipment manufacturers, custom smelters and additional debt or equity
financing secured by the Company, however, there can be no assurances to that
effect.

As the holder of the Al Masane mining lease, the Company is solely
responsible to the Saudi Arabian government for the rental payments and other
obligations provided for by the mining lease and repayment of the $11 million
loan jointly secured by the Company and National Mining from the Saudi Arabian
government. The mining lease provides that the Company will repay the loan
from the profits of the project. The initial term of the lease is for a period
of thirty (30) years from May 22, 1993, with the Company having the option to
renew or extend the term of the lease for additional periods not to exceed
twenty (20) years. Under the lease, the Company agreed to pay in advance a
surface rental at the rate of ten thousand Saudi Riyals (approximately $2,667
at the current exchange rate) per square kilometer per year (approximately
$117,300 annually) during the period of the lease. The Company made the rental
payments for the first year of the lease. As of December 31, 1995, the Company
has not paid for rentals of approximately $191,000. In addition, the Company
must pay income tax in accordance with the income tax laws of Saudi Arabia then
in force and pay all infrastructure costs. Under the Mining Code, income tax
will not be due in respect to mining operations during the period of five years
starting from the date of the first sale of products or five years from the
beginning of the fourth year after the issue of the mining lease, whichever
comes first. The lease gives the Saudi Arabian government priority to purchase
the Company's whole production of gold or any part thereof from the project.
The lease also gives the Saudi Arabian government the right to purchase up to
10% of the Company's annual production of other minerals on the same terms and
conditions then available to other similar buyers and at current prices then
prevailing in the

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free market. The lease contains provisions requiring that preference be given
to Saudi suppliers and contractors and that the Company employ Saudi Arabian
citizens and provide training to Saudi Arabian personnel.

Reference is made to the map on page 16 of this Report for information
concerning the location of the Al Masane project.

Other Exploration Areas in Saudi Arabia

In 1980, the Company, together with National Mining and another Saudi
private company, applied to the Saudi government for an exploration license
covering a large area in northern Saudi Arabia known as Ghurayyah. Preliminary
investigations indicated that the Ghurayyah area contained substantial
columbium, tantalum and other mineral deposits. The Company has decided that
further efforts in this area will not be undertaken.

During the course of the exploration and development of the Al Masane
area, the Company has carried on exploration work in other areas in Saudi
Arabia and is applying for an additional exploration license in that country.

With respect to these other license areas, the Company has an
agreement with Petromin which governs the rights of the parties if the
exploration licenses granted to the Company are converted into a mining lease.
Under this agreement, Petromin is granted an option to acquire, at any time, a
25% interest in any project to mine minerals in Saudi Arabia the exploration
for which has been conducted under exploration licenses originally granted to
the Company and National Mining. National Mining has relinquished its rights
in these areas and assigned them to the Company.

U.S. Mineral Interests

The Company has other mineral interests in the United States,
including approximately a 55% beneficial, and approximately a 46% direct,
equity interest in Pioche-Ely Valley. The Coal Company no longer owns or holds
any mineral interests and is presently inactive. The future of the Coal
Company's operations is uncertain. The Refining Company is a party to a joint
venture with a Saudi company and the former owners of TOCCO the purpose of
which is to engage in the trading of crude petroleum and refined petroleum
products. The joint venture has not consummated any petroleum trading
transactions.

Petroleum Refinery

South Hampton owns and operates a petroleum refinery near Silsbee,
Texas and currently employs 46 people. The refinery is presently devoted to
specialized processing activities. The refinery currently consists of seven
operating units which, while interconnected, make distinct products through
differing processes:

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(1) a pentane-hexane unit; (2) a catalytic reformer; (3) an aromatics
hydrotreating and fractionation unit; (4) a cyclopentane unit; (5) an Aromax(R)
unit; (6) an aldehyde hydrogenation unit; and (7) a specialty fractionation
unit. All of these units are presently in operation.

The design capacity of the pentane-hexane unit is approximately 2,200
BPD of feedstock. The unit averaged 1,660 barrels per stream day during 1995.
The unit consists of a series of fractionation towers and hydrotreaters capable
of producing high purity solvents which are sold primarily to expandable
polystyrene and high density polyethylene producers. South Hampton purchases
most of its feedstock for this unit on the spot market.

The catalytic reforming unit is a standard industry design using
platinum-rhenium catalyst which produces an aromatics concentrate used as
feedstock for the aromatics extraction unit, as well as hydrogen which is
utilized in other processes. The design capacity of the reformer is 4,000 BPD.
The unit is operated as a standby source of hydrogen for the pentane-hexane
unit and does not run continually. The unit is operated as a source of
hydrogen for the pentane-hexane unit and operates in tandem with the Aromax(R)
unit as feedstock balances dictate. The unit averaged 327 barrels per stream
day during 1995.

The aromatics hydrotreating and fractionation unit consists of a
hydrotreating reactor and a single fractionation tower and has a design
capacity of 500 BPD. By-product chemical streams have historically been
processed by this unit into two products, high octane gasoline blendstocks and
heavy aromatic oils sold as fuel oil blending stock. This unit is leased to a
customer for its own use pursuant to a contract providing for the payment of a
minimum daily charge.

The cyclopentane unit consists of three specialized fractionation
towers designed to produce a consistently high quality product which is used in
the expandable polystyrene industry. The design capacity of the cyclopentane
unit is 400 BPD. The unit operates according to the feedstock supplied by the
pentane-hexane unit and averaged 258 barrels per stream day during 1995.

The Aromax(R) unit is the world's first commercial unit using a
proprietary process of Chevron Research Company to produce a high benzene
content product which is sold as feedstock to refiners operating benzene
extraction units. The process converts petroleum naphtha into liquid
hydrocarbons having a higher aromatic hydrocarbon content. The aromax unit
capacity is 400 BPD and uses a by-product of the pentane-hexane unit as
feedstock. The unit operates according to the feedstock supplied from the
pentane-hexane unit and the other hydrotreaters. The unit averaged throughput
of 158 barrels per stream day during 1995. Chevron

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Research has agreed to continue development of the Aromax(R) process.
The unit has continued to successfully operate as designed.

The specialty fractionation unit consists of two fractionation towers
and has a design capacity of 1,000 BPD. This unit is leased to a customer for
its own use pursuant to a contract providing for the payment of a minimum daily
charge.

South Hampton also owns approximately 70 storage tanks with a total
capacity of approximately 250,000 barrels. The refinery is situated on 100
acres of land, approximately 70 acres of which is developed. South Hampton
owns a truck and railroad loading terminal consisting of eight storage tanks, a
rail spur and truck and tank car loading facilities.

As a result of an expansion program of the production capacity of the
South Hampton refinery completed in 1990, essentially all of the standing
equipment at South Hampton is operational. The Company has surplus equipment
in storage on site with which to assemble further processing units, such as a
hydrocracking unit with a 2,000 BPD capacity.

The upgrading and expansion projects were completed at a cost which
exceeded the capital resources available to South Hampton to finance such
activities. Financing for the upgrading and expansion projects was provided
from advances by the Company through the Refining Company to South Hampton of a
portion of the proceeds of the sale of shares of the Company's Common Stock and
the advances by Chevron Research and another customer. The advances by the
Company through the Refining Company to South Hampton for the upgrading and
expansion of the refinery were $550,000 in the aggregate, $510,000 of which
amount is secured by a lien on the assets and properties of South Hampton,
which is subordinate to the liens securing the indebtedness of South Hampton to
Den norske Bank AS.

In January 1996, Gulf State acquired an additional five miles of
natural gas pipeline and now owns and operates three 8" pipelines aggregating
approximately 50 miles in length which connect the South Hampton refinery to a
natural gas line, to South Hampton's truck and rail loading terminal and to a
marine terminal owned by an unaffiliated third party. South Hampton leases
storage facilities at the marine terminal.

Revenues and Financing

With the exception of revenues generated by the operations of the
Refining Company, the Company has been without significant operating revenues
since 1972. Accordingly, it has been necessary for the Company continually to
seek additional debt and equity financing in order to have funds to continue
development activities.

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In 1993, the Company (1) sold 75,000 shares of its Common Stock at
$1.00 per share to a private Saudi company controlled by a director of the
Company and sold an additional 300,000 shares of its Common Stock at $1.00 per
share to the same purchaser pursuant to an option exercise, which shares are
partly paid as a result of $100,000 of the exercise price having been paid
during 1993, (2) sold 3,000,000 shares of its Common Stock at $1.00 per share
to a Saudi Arabian investor, $300,000 of the purchase price of which consisted
of the cancellation of various loans made to the Company, (3) sold 256,250
shares of its Common Stock for $256,250, (4) borrowed $13,279 from a
stockholder of the Company who is the Vice Chairman of National Mining pursuant
to an interest-free demand note and (5) issued 200,000 shares of its Common
Stock, valued by the Company's Board of Directors at $1.00 per share, to a
company owned by the wife of the President of the Company in exchange for the
cancellation of certain indebtedness.

In 1994, the Company (1) negotiated an extension until June 30, 1995
of the maturity of the Amended and Restated Credit Agreement with Den norske
Bank AS, (2) issued 14,000 shares of its Common Stock at $1.00 per share
pursuant to an option exercised by the Company's Chairman of the Board in
exchange for the cancellation of certain indebtedness, (3) consolidated two
notes payable by the Company's President and Chief Executive Officer, in the
amounts of $99,000 and $27,000, which matured on December 31, 1993 and January
31, 1994, respectively, into one note for $126,000 having a December 31, 1995
maturity date and bearing interest at the rate of six percent per annum, (4)
received $50,000 from a 1993 sale of its Common stock to a private Saudi
company controlled by a director of the Company pursuant to a partial option
exercise and (5) offset $30,000 in unpaid compensation due to the Company's
Chairman of the Board against amounts owned to the Company by four companies
owned by the Chairman of the Board.

In 1995, the Company (1) negotiated an extension until April 30, 1996
of the maturity of the Amended and Restated Credit Agreement with Den norske
Bank AS, (2) borrowed $721,000 in the aggregate from four individuals,
including a stockholder of the Company who is the Vice Chairman of National
Mining Company, a stockholder of the Company, the President and Chief Executive
Officer of the Company and a relative of such executive officer, pursuant to
loans payable on demand two years after their issuance bearing interest at
LIBOR plus 2%, such lenders having the option for a period of five years from
the date of the loan to convert the principal amount of the loan and all
accrued interest into shares of the Company's Common Stock at the rate of $1.00
per share, (3) received $50,000 payment on a stockholder receivable from a 1993
sale of shares of its Common Stock to a private Saudi company controlled by a
director and (4) granted the President and Chief Executive Officer of the
Company an option to convert at any time $400,000 of deferred compensation for
services rendered to the Company into shares of the Company's Common Stock at
the rate of $1.00 per share.

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15
It may be necessary to secure funds to continue operations through the
sale of portions of the Company's properties, its investments or a portion of
the Company's interest therein. There are no assurances that these sales could
be arranged or that sufficient additional equity or debt financing can be
obtained.

The Refining Company had operating income of approximately $880,000,
before depreciation and amortization of approximately $677,000, on gross
refined product sales of $17,741,862 for the 1995 fiscal year compared with
operating income of approximately $2,414,000, before depreciation and
amortization of $646,000, on gross refined product sales of $17,564,000 for the
1994 fiscal year, and operating income of approximately $710,000, before
depreciation and amortization of $678,000, on gross refined product sales of
$15,103,000 for the 1993 fiscal year.

Management believes that South Hampton will be able to continue to
attain a positive cash flow as a result of the upgrading and expansion
projects. Any such cash flow would, however, be insufficient to retire the
debt due on April 30, 1996 to Den norske Bank AS. In connection with the
latest extension of the Den norske Bank AS loan, South Hampton agreed to make a
principal payment of $100,000 during the four month extension period. Except
for the foregoing, the terms and conditions of the loan remain the same. The
extension is designed to permit Den norske Bank AS and South Hampton to
negotiate a restructuring of the loan into a two year revolving credit loan,
which has been agreed to in principle by the parties, but no formal agreement
has been reached. Failure to extend or renegotiate the loan with Den norske
Bank AS would require South Hampton to seek alternative sources of financing
which, if unsuccessful, could result in a foreclosure action and subsequent
loss of the refinery.

The Amended and Restated Credit Agreement with Den norske Bank AS is
secured by all of the assets of South Hampton and all of the issued and
outstanding shares of TOCCO, South Hampton and Gulf State. In addition to
requiring that a substantial portion of South Hampton's cash flow be applied to
reduce the amount outstanding, the Amended and Restated Credit Agreement with
Den norske Bank AS prohibits the payment of dividends by South Hampton. South
Hampton is also required to collect all receivables through a cash collateral
account at a local bank. Only the amount of funds required to operate South
Hampton's business may be used and weekly reports of cash receipts and
disbursements in the cash collateral account must be provided to Den norske
Bank AS. If South Hampton defaults on the credit agreement, Den norske Bank AS
has the right to freeze the funds in the cash collateral account. South
Hampton met all of the loan covenants throughout 1995, except that in July 1995
South Hampton remitted $30,000 to the Company in partial repayment of the
intercompany note, causing the loan to be in default. At December 31, 1995,
the Company had not repaid this advance. Den norske Bank AS has agreed to
receiving payment of the $30,000 by April 30, 1996 in addition to the $100,000
in principal

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16
due by April 30, 1996. The Refining Company agreed to subordinate all company
notes to the Amended and Restructured Credit Agreement. Expiration of the
guarantee of the letter of credit portion of the Amended and Restated Credit
Agreement resulted in Den norske Bank AS drawing down a $1,500,000 letter of
credit provided by the guarantor. As a consequence, South Hampton is indebted
to the guarantor for such amount.

There can be no assurance that the Company will successfully develop
any of its undeveloped mineral properties or, if developed, that they will be
commercially productive. None of the Company's undeveloped mineral properties
currently produces revenues, and such properties will not produce revenues from
operations to the Company unless and until exploration is completed and
successful development is accomplished. Meaningful progress in some of these
efforts is currently hampered by the Company's lack of sufficient operating
funds.

In the case of the Al Masane project, the Company must secure the
financing and construction of the mining and milling facilities before revenues
from that project may be realized. The Coal Company's lack of significant
assets, combined with the Company's lack of operating funds, inhibits any
future activities of the Coal Company. The Company is planning limited
exploration of the Pioche-Ely Valley properties in 1996.

The Company believes that acceptable financing for the estimated cost
of the Al Masane project can be arranged, although there can be no assurance
that such financing could be obtained. The results of the feasibility study
show the estimated total capital costs of the project to be $81.3 million.

See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Item 12. Security Ownership of Certain
Beneficial Owners and Management and Item 13. Certain Relationships and
Related Transactions for further discussion of these matters.

Foreign Operations

Since a substantial portion of the Company's mineral properties and
interests are located outside of the United States, its business and properties
are subject to foreign laws and foreign conditions, with the attendant varying
risks and advantages. Foreign exchange controls, foreign legal and political
concepts, foreign government instability, international economics and other
factors create risks not necessarily comparable with those involved in doing
business in the United States.

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17
Competition

If it reaches the point of engaging in commercial mineral production,
the Company expects to encounter strong competition from established mining
companies which in many cases will be more extensively capitalized and have
more extensive facilities and more numerous personnel than does the Company.

Personnel

In order to conserve all available funds, the Company continues to
keep its general and administrative personnel to a minimum. Its only officers
resident in the United States are Mr. John A. Crichton, Chairman of the Board,
and Mr. Drew Wilson, Jr., who works on a part-time basis for the Company and
serves as its Secretary and Treasurer. The other employees of the Company,
numbering approximately 29, consist of the office personnel and field crews
conducting core drilling and other exploration activities in Saudi Arabia under
the supervision of Mr. Hatem El-Khalidi, President and Chief Executive Officer
of the Company. South Hampton currently employs 46 persons.

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18
[map]

-16-
19
Item 2. Properties.

Saudi Arabia Mining Properties

Al Masane. The Al Masane project, which consists of an area of
approximately 44 square kilometers, contains extensive ancient mineral workings
and smelters. From ancient inscriptions in the area, it is believed that
mining activities went on sporadically from 1000 B.C. to 700 A.D. The ancients
are believed to have extracted mainly gold, silver and copper. The discussion
of the Al Masane project set forth under Item 1. Business is incorporated
herein by reference.

Other Saudi Arabian Areas. In 1971, the government of Saudi Arabia
awarded the Company and National Mining exclusive mineral exploration licenses
to explore and develop the Wadi Qatan area in southwestern Saudi Arabia. The
companies were subsequently awarded an additional license in August of 1977
covering an area to the north of Wadi Qatan at Jebel Harr. The licenses have
expired by their terms, and although the Company has received verbal assurance
from Saudi Arabian government officials that the licenses will be extended as
long as exploratory work is being carried out on the areas which they cover,
formal extensions from the government have not been obtained. The Company is
applying for an additional license covering an area surrounding the Al Masane
mining lease area, which is referred to as the Greater Al Masane area and which
includes the Wadi Qatan and Jebel Harr areas. Formerly, an application was
made for these areas jointly by the Company and National Mining. If granted,
the exploration license being applied for now will be owned solely by the
Company. Although a license has not been formally granted, the Company was
authorized in writing to carry out exploration work on the area. Exploration
work has been carried on and paid for exclusively by the Company. Reference is
made to the map on page 16 of this Report for information concerning the
location of the foregoing areas. The Company, together with National Mining
and another Saudi private company, the Red Sea Mining Company, had also applied
for an exploration license covering the Ghurayyah area in northern Saudi
Arabia, however, the Company has decided that further efforts in this area will
not be undertaken.

The absence of current formal exploration licenses covering the areas
on which the Company has conducted, and is continuing to conduct, exploration
and development work in Saudi Arabia creates uncertainty concerning the
Company's rights and obligations concerning those areas. However, the Company
believes that it has satisfied the government's requirements concerning the
license areas and that the government should honor the Company's claims to
those areas.

In the event of the establishment of commercially exploitable
minerals, exploration licenses granted by the Saudi Arabian government may be
converted into mining leases upon application to

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20
the Saudi Arabian Ministry of Petroleum and Mineral Resources. The Company is
a party to an agreement with Petromin, the official mining and petroleum
company of the Saudi Arabian government, which governs the rights of the
parties if an exploration license granted to the Company is converted into a
mining lease. Reference is made to the discussion concerning the agreement
under Item 1. Business.

Wadi Qatan and Jebel Harr. The Wadi Qatan and Jebel Harr areas
consist of 40 square kilometers, plus a northern extension of an additional 13
square kilometers. Geological and geophysical work by the Company and limited
core drilling disclose the existence of massive sulphides containing nickel.
Preliminary core drilling to shallow depths disclosed the existence of massive
sulfides containing an average of 1.2% nickel. Reserves for these areas have
not been classified and more drilling is needed to classify them as proven or
probable. Initial metallurgical studies by consultants to the Company in 1976
indicated difficulty in concentrating the nickel minerals. However, in 1983
the ore was examined by a metallurgical consulting company and it was
demonstrated that the ore can be treated to produce ferronickel and iron which
can be used to produce steel. The proposed method could be commercially viable
if enough ore is proven. Further metallurgical work by another consulting
company in 1985 indicated that the ore can be treated by hydrometallurgical
methods. The Company plans to obtain a renewal of its exploration licenses in
the Wadi Qatan and Jebel Harr areas to enable it to continue its drilling
program to prove enough ore for a viable mining operation. Although the
indications are encouraging there is no assurance that a viable mining
operation could be established.

Greater Al Masane. An application has been made and verbally approved
for another exploration license covering approximately 1,100 square kilometers
around Al Masane, sometimes referred to as Greater Al Masane, which includes an
ancient gold mining prospect at Jubal Guyan, about six miles east of the
original Al Masane prospect and seven miles west of Wadi Qatan. The Saudi
Arabian government has given the Company written authorization to conduct
exploration work on the area, although the license has not been formally
granted. Core samples indicate an average grade of 7 grams of gold per tonne.
Additional sampling is being conducted at Jubal Guyan, and after the results of
the sampling are obtained, an evaluation will be made as to future drilling
locations. Geological, geochemical and geophysical work on the Greater Al
Masane area has disclosed mineralization similar to that discovered at Al
Masane. Since National Mining has withdrawn from partnership with the Company,
an application for an exploration license for an area of 2,800 square
kilometers which includes the original Greater Al Masane area plus the Wadi
Qatan and Jebel Harr areas will be made. If granted, the exploration license
will be owned solely by the Company.

Ghurayyah. In 1980, the Company, together with National Mining
Company and the Red Sea Mining Company, applied jointly for

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21
an additional exploration license covering the 7,000 square kilometer Ghurayyah
area in the northern part of Saudi Arabia. The application for the exploration
license has been pending with the Saudi Arabian Ministry of Petroleum and
Mineral Resources. The company has decided that further efforts in this area
will not be undertaken.

Refining Operations

South Hampton owns and operates a petroleum refinery near Silsbee,
Texas. South Hampton owns all of the capital stock of Gulf State, which owns
and operates three pipelines which connect the South Hampton refinery to a
natural gas line, to South Hampton's truck and rail loading terminal and to a
marine terminal owned by an unaffiliated third party. The properties owned by
South Hampton and Gulf State are more fully described in Item 1. Business.

Nevada Mining Properties

There are 48 patented and 84 unpatented claims totaling approximately
3,700 acres in the Pioche-Ely Valley properties. All the claims are located in
the Pioche District, Lincoln County, in southeastern Nevada. There are
prospects and mines on these claims which formerly produced silver, gold, lead,
zinc and copper. The ore bodies are both oxidized and sulfide deposits,
classified into three groups: fissure veins in quartzite, mineralized granite
porphyry and replacement deposits in carbonate rocks (limestone and dolomites).
The Company is planning limited exploration in 1996.

There is a 300-ton-a-day processing mill on property owned by
Pioche-Ely Valley. The mill is not currently in use and a significant
expenditure would be required in order to put the mill into continuous
operation. A lease of the Wide Awake mine property was extended until December
31, 1996 and will continue as long as minerals are produced in commercial
quantities or unless terminated by the parties. The lease stipulates a 6%
royalty on net smelter returns with no annual rental required. The lessee
plans to drill a significant core hole on the Wide Awake property in 1996.

Colorado Coal Properties

The Coal Company has tax loss carry-forwards of approximately $5.9
million which is limited to its net income. The Coal Company has been
negotiating with several companies toward the possible use of this amount,
although there can be no assurance that any agreement relating thereto will be
reached.

Offices

The Company has a year-to-year lease on space in an office building in
Jeddah, Saudi Arabia, used for office occupancy. The Company also leases a
house in Jeddah which is used as a technical

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22
office and for staff housing. The Company continues to lease office space in
an office building in the northern part of Dallas, Texas on a month-to-month
basis. It also has a base camp and accompanying facilities and equipment at
its license areas in Saudi Arabia.

Item 3. Legal Proceedings.

South Hampton filed suit on July 18, 1994 in the 88th Judicial
District Court in Hardin County, Texas against National Union Fire Insurance
Company arising from the claim of South Hampton under the Uniform Declaratory
Judgment Act for a ruling as to the construction of an insurance contract
issued by National Union insuring South Hampton. South Hampton also asserted
claims against National Union for breach of contract, negligence, breach of the
duty of good faith and fair dealing and certain violations of the Texas
Insurance Code. This case was removed to the United States District Court on
August 22, 1994. The court ordered that it will first consider South Hampton's
contractual coverage claims under the Uniform Declaratory Judgment Act and
abated all of the other claims pending the outcome of the contractual coverage
claims. Any proceeds received by South Hampton from this cause of action would
be payable by South Hampton to Cajun Energy, Inc. and E-Z Mart Stores pursuant
to the terms of a judgment entered against South Hampton.

South Hampton, together with over twenty-five other companies, is a
defendant in two proceedings pending in the 60th Judicial District Court in
Jefferson County, Texas and in the 136th Judicial District Court of Jefferson
County, Texas, respectively, brought on July 21, 1993 and July 18, 1994,
respectively, by John Ricklefsen and James Griffin, two former employees of the
Goodyear Tire & Rubber Company plant located in Beaumont, Texas, claiming
illness and diseases resulting from alleged exposure to chemicals, including
benzene, butadiene and/or isoprene, during their employment with Goodyear.
Plaintiffs claim that the defendant companies engaged in the business of
manufacturing, selling and/or distributing these chemicals in a manner which
subjects each and all of them to liability for unspecified actual and punitive
damages. South Hampton intends to vigorously defend against these lawsuits.

In mid-1993, while remediating a small spill area, the Texas Natural
Resources Conservation Commission ("TNRCC") requested South Hampton to drill a
well to check the groundwater under the refinery property to ensure that
contamination had not taken place. The well disclosed a pool of hydrocarbons
on top of the groundwater under the loading rack area. An analysis of the
material indicated that the hydrocarbons were produced over ten years ago when
the refinery processed crude oil. Consulting engineers were hired to determine
the size of the pool. Three recovery wells were utilized and the hydrocarbons
are being pumped out and treated in treatment ponds. The TNRCC has been
cooperating in the investigation and

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23
cleanup. Due to the apparent age of the material, no fine or enforcement
action is expected. A site assessment plan was completed and approved in
November 1995 to determine the extent of the hydrocarbon pool. The costs
through 1995 for this problem totaled approximately $75,000. Future costs for
recovery and remediation should be small as it is primarily a matter of
operating the recovery wells.

In August 1994, the TNRCC's Air Permit Section proposed a fine of
approximately $46,000 to settle various alleged permit violations identified in
their 1991, 1992 and 1993 inspections. South Hampton agreed to the proposed
settlement with the stipulation that payments be spread over a twelve month
period. The TNRCC did not respond to South Hampton's offer and in December
1995, the TNRCC proposed an increase in the fine to $67,200. South Hampton is
vigorously protesting the increased fine as it believes that the settlement has
been previously agreed upon. However, no agreement has been reached with the
TNRCC. At December 31, 1995, South Hampton has accrued $40,000 as a current
liability to cover the potential costs of the contingency which it believes is
adequate to cover the possible range of loss.

On December 26, 1995, the Company filed a complaint of criminal libel
with the Yemen Attorney General for Publications in Sana'a, Yemen against Yemen
Hunt Oil Company ("Yemen Hunt"), alleging that Yemen Hunt, in a published
letter to a prominent Yemen newspaper, accused the Company of engaging in
political activities for the purposes of undermining the economic interests of
Yemen. The Company believes that this is a malicious libel which could
seriously affect the business and reputation of the Company and its employees
in the Middle East. The Company intends to vigorously pursue the complaint.

Prior to 1995, the Company filed a complaint with the U.S. Department
of Justice ("DOJ") against Hunt Oil Company of Dallas, Texas ("Hunt"), alleging
violations of the Foreign Corrupt Practices Act by Hunt in obtaining its
Petroleum Production Sharing Agreement ("PSA") in Yemen in 1981, subsequent to
the Company presenting a bid to the Yemen government for the same area. The
Company believes that, because the PSA of Hunt is still ongoing, and under its
auspices, payments and receipts occur daily, the DOJ still has jurisdiction to
continue its investigation. A letter from the DOJ on December 19, 1995 stated
its interest in receiving additional documentation regarding the Company's
allegations. On February 28, 1996, the Company sent more documents to the DOJ
which it believes will further support its allegations and is awaiting a
response by the DOJ. The Company believes that the Victim Restitution Act
provides for restitution to the Company of monies lost as a result of the
alleged wrongdoing by Hunt, if Hunt is convicted under the Foreign Corrupt
Practices Act.

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Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of the Company' stockholders during
the fourth quarter of 1995.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

This information is set forth under the caption "Market for the
Company's Common Stock and Related Stockholder Matters" of the Company's 1995
Annual Report to Stockholders filed herein as Exhibit 13, which portion of such
Annual Report is incorporated herein by reference.

Item 6. Selected Financial Data.

This information is set forth under the caption "Selected Financial
Data" for each of the five years in the period ended December 31, 1995, of the
Company's 1995 Annual Report to Stockholders filed herein as Exhibit 13, which
portion of such Annual Report is incorporated herein by reference.

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25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

This information is set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
the Company's 1995 Annual Report to Stockholders filed herein as Exhibit 13,
which portion of such Annual Report is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.

The financial statements of the Company including the independent
auditor's report thereon of the Company's 1995 Annual Report to Stockholders
filed herein as Exhibit 13, are incorporated herein by reference.

Item 9. Disagreements on Accounting and Financial Disclosure.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

This information is set forth under the captions "Nominees for
Election as Directors" and "Executive Officers" of the Company's Proxy
Statement for the Company's Annual Meeting of Stockholders.

Item 11. Executive Compensation.

This information is set forth under the caption "Executive
Compensation" of the Company's Proxy Statement for the Company's Annual Meeting
of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and
Management.

This information is set forth under the caption "Outstanding Capital
Stock" of the Company's Proxy Statement for the Company's Annual Meeting of
Stockholders.

Item 13. Certain Relationships and Related Transactions.

This information is set forth under the caption "Other Matters" of the
Company's Proxy Statement for the Company's Annual Meeting of Stockholders.

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PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.

(a) 1. The following financial statements are
incorporated by reference from the Company's 1995
Annual Report to Stockholders filed herein as
Exhibit 13:

Report of Independent Accountants.
Consolidated Balance Sheets dated December 31,
1995 and 1994.
Consolidated Statement of Operations for the three
years ended December 31, 1995.
Consolidated Statement of Stockholders' Equity for
the three years ended December 31, 1995.
Consolidated Statement of Cash Flows for the three
years ended December 31, 1995.
Notes to Consolidated Financial Statements.

2. The following financial statement schedules are
filed with this Report:

Schedule II - Valuation and Qualifying Accounts
for the three years ended December 31, 1995.

3. The following documents are filed or incorporated
by reference as exhibits to this Report:

3(a) Certificate of Incorporation of the
Company as amended through the Certificate
of Amendment filed with the Delaware
Secretary of State on January 29, 1993
(incorporated by reference to Exhibit 3(a)
to the Company's Quarterly Report on Form
10-Q/A for the quarter ended September 30,
1994 (File No. 0-6247)).

3(b) Bylaws of the Company, as amended through
July 6, 1994 (incorporated by reference to
Exhibit 3(b) to the Company's Quarterly
Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No.
0-6247)).

10(a) Contract dated July 29, 1971 between the
Company, National Mining Company and
Petromin (incorporated by reference to
Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No.
0-6247)).

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27
10(b) Loan Agreement dated January 24, 1979
between the Company, National Mining
Company and the Government of Saudi Arabia
(incorporated by reference to Exhibit
10(b) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(c) Form of Contract for the Exploration and
Development of the Al-Ghurayyah Area
entered into in December 1982 between
Petromin and the Company, National Mining
Company and Red Sea Mining Company
(incorporated by reference to Exhibit
10(c) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(d) Mining Lease Agreement effective May 22,
1993 by and between the Ministry of
Petroleum and Mineral Resources and the
Company, together with English translation
thereof (incorporated by reference to
Exhibit 10(d) to the Company's Quarterly
Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No.
0-6247)).

10(e) Stock Option Plan of the Company, as
amended (incorporated by reference to
Exhibit 10(e) to the Company's Quarterly
Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No.
0-6247)).

10(f) 1987 Non-Employee Director Stock Plan
(incorporated by reference to Exhibit
10(f) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(g) Phantom Stock Plan of Texas Oil & Chemical
Co. II, Inc. (incorporated by reference to
Exhibit 10(g) to the Company's Quarterly
Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No.
0-6247)).

10(h) Amended and Restated Credit Agreement
dated December 13, 1990 between South
Hampton Refining Company and Den norske
Bank AS, together with related Promissory
Note, Cash Collateral Account Agreement,
Subordination Agreement and Intercreditor
Agreement, all of even date therewith
(incorporated by reference to Exhibit
10(h) to the Company's

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Quarterly Report on Form 10-Q/A for the
quarter ended September 30, 1994 (File
No. 0-6247)).

10(i) Second Lien Promissory Note dated July 28,
1989 from South Hampton Refining Company
to American Shield Refining Company
(incorporated by reference to Exhibit
10(i) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(j) Subordination Agreement dated July 28,
1989 by and among Texas Oil and Chemical
Co. II, Inc., South Hampton Refining
Company, Gulf States Pipe Line Company,
the Company, American Shield Refining
Company and den Norske Creditbank
(incorporated by reference to Exhibit
10(j) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(k) Amendment No. 1 and Amendment No. 2 to
Amended and Restated Credit Agreement
dated March 15, 1991 and December 31,
1991, respectively, between South Hampton
Refining Company and Den norske Bank AS
together with related Guaranty dated as of
December 31, 1991, by Texas Oil & Chemical
Co. II, Inc. in favor of Den norske Bank
AS Pledge Agreement and Irrevocable Proxy
dated as of December 31, 1991, between
Texas Oil & Chemical Co. II, Inc. and Den
norske Bank AS and Pledge Agreement and
Irrevocable Proxy dated as of December 31,
1991, between South Hampton Refining
Company and Den norske Bank AS
(incorporated by reference to Exhibit
10(k) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(l) Letter Agreement dated February 28, 1994
by and between South Hampton Refining
Company and Den norske Bank AS
(incorporated by reference to Exhibit
10(l) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(m) Letter Agreement dated June 2, 1994 by and
between South Hampton Refining Company and
Den norske Bank AS, together with related
Letter Agreement dated June 2, 1994 by and

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29
between the Company and Den norske Bank AS
(incorporated by reference to Exhibit
10(m) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(n) Letter Agreement dated December 2, 1994 by
and between South Hampton Refining Company
and Den norske Bank AS (incorporated by
reference to Exhibit 10(n) to the
Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994
(File No. 0-6247)).

10(o) Agreement dated March 10, 1988 between
Chevron Research Company and South Hampton
Refining Company, together with related
form of proposed Contract of Sale by and
between Chevron Chemical Company and South
Hampton Refining Company (incorporated by
reference to Exhibit 10(o) to the
Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994
(File No. 0-6247)).

10(p) Addendum to the Agreement Relating to
AROMAX(R) Process - Second Commercial
Demonstration dated June 13, 1989 by and
between Chevron Research Company and South
Hampton Refining Company (incorporated by
reference to Exhibit 10(p) to the
Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994
(File No. 0-6247)).

10(q) Vehicle Lease Service Agreement dated
September 28, 1989 by and between Silsbee
Trading and Transportation Corp. and South
Hampton Refining Company (incorporated by
reference to Exhibit 10(q) to the
Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994
(File No. 0-6247)).

10(r) One-Year Adjustable Interest Rate Note
dated February 1, 1995, effective December
31, 1994, from Texas Oil & Chemical Co.
II, Inc. to Silsbee State Bank, together
with Deed of Trust of even date therewith
(incorporated by reference to Exhibit
10(s) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

-27-
30
10(s) Letter Agreement dated May 3, 1991 between
Sheikh Kamal Adham and the Company
(incorporated by reference to Exhibit
10(t) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(t) Promissory Note dated February 17, 1994
from Hatem El-Khalidi to the Company
(incorporated by reference to Exhibit
10(u) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(u) Lease Agreement dated as of August 13,
1993 by and among Pioche-Ely Valley Mines,
Inc., Minerals Processing, Inc. and World
Hydrocarbons, Inc. (incorporated by
reference to Exhibit 10(v) to the
Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994
(File No. 0-6247)).

10(v) Letter Agreement dated August 15, 1995
between Hatem El-Khalidi and the Company.

10(w) Letter Agreement dated August 24, 1995
between Sheikh Kamal Adham and the Company.

10(x) Letter Agreement dated October 23, 1995
between Sheikh Fahad Al-Athel and the
Company.

10(y) Letter Agreement dated December 6, 1995
between Ibrahim Khalidi and the Company.

10(z) Letter Agreement date March 11, 1996 by
and between South Hampton Refining Company
and Den norske Bank AS.

13 1995 Annual Report to Stockholders.

With the exception of the information
incorporated by reference into Items 5, 6,
7, 8 and 14 of this Form 10-K, the 1995
Annual Report to Stockholders is not to be
deemed filed as part of this Report.

21 Subsidiaries (incorporated by reference to
Exhibit 21 to the Company's Quarterly
Report on Form 10-Q/A for the quarter
ended September 30, 1994 (File No.
0-6247)).

-28-
31
27 Financial Data Schedule.

(b) No reports on Form 8-K were filed during the last quarter of
the period covered by this Report.

-29-
32
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each of Arabian Shield Development
Company, a Delaware corporation, and the undersigned directors and officers of
Arabian Shield Development Company, hereby constitutes and appoints John A.
Crichton its or his true and lawful attorney-in-fact and agent, for it or him
and in its or his name, place and stead, in any and all capacities, with full
power to act alone, to sign any and all amendments to this Report, and to file
each such amendment to the Report, with all exhibits thereto, and any and all
other documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorney-in-fact and agent full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as it
or he might or could do in person, hereby ratifying and confirming all that
said attorney-in- fact and agent may lawfully do or cause to be done by virtue
hereof.

SIGNATURES

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

ARABIAN SHIELD DEVELOPMENT COMPANY

By: /s/ Hatem El-Khalidi
Hatem El-Khalidi, President
and Chief Executive Officer

Dated: March 29, 1996

-30-
33
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
Company in the capacities indicated on March 29, 1996.

Signature Title
- --------- -----

/s/ Hatem El-Khalidi President, Chief Executive
- ------------------------- Officer and Director (principal
Hatem El-Khalidi executive officer)

/s/ Drew Wilson, Jr. Secretary and Treasurer
- ------------------------- (principal financial and
Drew Wilson, Jr. accounting officer)

/s/ John A. Crichton Chairman of the Board and
- ------------------------- Director
John A. Crichton

/s/ O.W. Hammonds Director
- -------------------------
Oliver W. Hammonds

- ------------------------- Director
Harb S. Al Zuhair

Director
- -------------------------
Mohammed O. Al-Omair

/s/ Ghazi Sultan Director
- -------------------------
Ghazi Sultan

-31-
34
Schedule II

ARABIAN SHIELD DEVELOPMENT COMPANY & SUBSIDIARIES
Valuation and Qualifying Accounts
Three Years Ended December 31, 1995

Charged to Ending
Description Beginning Earnings Deductions Balance
--------- ---------- ---------- -------

ALLOWANCE FOR DOUBTFUL ACCOUNTS - (a)

December 31, 1993 $ 211,361 $ 20,242 -- $231,603

December 31, 1994 231,603 12,551 -- 244,154

December 31, 1995 244,154 16,092 -- 260,246

ALLOWANCE FOR DEFERRED TAX ASSET

December 31, 1993 10,869,358 370,416 -- 11,239,774

December 31, 1994 11,239,774 (1,450,467) -- 9,789,307

December 31, 1995 9,789,307 2,014,440 -- 11,803,747

(a) Valuation account deducted in the balance sheet from trade accounts
receivable and other assets.
35

EXHIBIT INDEX

PAGE
----

3(a) Certificate of Incorporation of the Company as amended through the
Certificate of Amendment filed with the Delaware Secretary of State
on January 29, 1993 (incorporated by reference to Exhibit 3(a) to
the Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

3(b) Bylaws of the Company, as amended through July 6, 1994
(incorporated by reference to Exhibit 3(b) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended September 30,
1994 (File No. 0-6247)).

10(a) Contract dated July 29, 1971 between the Company, National Mining
Company and Petromin (incorporated by reference to Exhibit 10(a) to
the Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(b) Loan Agreement dated January 24, 1979 between the Company, National
Mining Company and the Government of Saudi Arabia (incorporated by
reference to Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No.
0-6247)).

10(c) Form of Contract for the Exploration and Development
of the Al-Ghurayyah Area entered into in December 1982
between Petromin and the Company, National Mining
Company and Red Sea Mining Company (incorporated by
reference to Exhibit 10(c) to the Company's Quarterly
Report on Form 10-Q/A for the quarter ended September
30, 1994 (File No. 0-6247)).

36

10(d) Mining Lease Agreement effective May 22, 1993 by and
between the Ministry of Petroleum and Mineral
Resources and the Company, together with English
translation thereof (incorporated by reference to
Exhibit 10(d) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994
(File No. 0- 6247)).

10(e) Stock Option Plan of the Company, as amended (incor-
porated by reference to Exhibit 10(e) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0- 6247)).

10(f) 1987 Non-Employee Director Stock Plan (incorporated
by reference to Exhibit 10(f) to the Company's
Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(g) Phantom Stock Plan of Texas Oil & Chemical Co. II,
Inc. (incorporated by reference to Exhibit 10(g) to
the Company's Quarterly Report on Form 10-Q/A for the
quarter ended September 30, 1994 (File No. 0-6247)).

10(h) Amended and Restated Credit Agreement dated December
13, 1990 between South Hampton Refining Company and
Den norske Bank AS, together with related Promissory
Note, Cash Collateral Account Agreement, Subordination
Agreement and Intercreditor Agreement, all of even
date therewith (incorporated by reference to Exhibit
10(h) to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994 (File No.
0-6247)).

10(i) Second Lien Promissory Note dated July 28, 1989 from
South Hampton Refining Company to American Shield
Refining Company (incorporated by reference to Exhibit
10(i) to the Company's Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1994 (File No. 0-
6247)).

37

10(j) Subordination Agreement dated July 28, 1989 by and among Texas Oil
and Chemical Co. II, Inc., South Hampton Refining Company, Gulf
States Pipe Line Company, the Company, American Shield Refining
Company and den Norske Creditbank (incorporated by reference to
Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q/A for
the quarter ended September 30, 1994 (File No. 0-6247)).

10(k) Amendment No. 1 and Amendment No. 2 to Amended and Restated Credit
Agreement dated March 15, 1991 and December 31, 1991, respectively,
between South Hampton Refining Company and Den norske Bank AS,
together with related Guaranty dated as of December 31, 1991, by
Texas Oil & Chemical Co. II, Inc. in favor of Den norske Bank AS,
Pledge Agreement and Irrevocable Proxy dated as of December 31,
1991, between Texas Oil & Chemical Co. II, Inc. and Den norske Bank
AS and Pledge Agreement and Irrevocable Proxy dated as of December
31, 1991, between South Hampton Refining Company and Den norske
Bank AS (incorporated by reference to Exhibit 10(k) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(l) Letter Agreement dated February 28, 1994 by and between South
Hampton Refining Company and Den norske Bank AS (incorporated by
reference to Exhibit 10(l) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-
6247)).

10(m) Letter Agreement dated June 2, 1994 by and between South Hampton
Refining Company and Den norske Bank AS, together with related
Letter Agreement dated June 2, 1994 by and between the Company and
Den norske Bank AS (incorporated by reference to Exhibit 10(m) to
the Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

38

10(n) Letter Agreement dated December 2, 1994 by and between South
Hampton Refining Company and Den norske Bank AS (incorporated by
reference to Exhibit 10(n) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-
6247)).

10(o) Agreement dated March 10, 1988 between Chevron Research Company and
South Hampton Refining Company, together with related form of
proposed Contract of Sale by and between Chevron Chemical Company
and South Hampton Refining Company (incorporated by reference to
Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q/A for
the quarter ended September 30, 1994 (File No. 0-6247)).

10(p) Addendum to the Agreement Relating to AROMAX(R) Process - Second
Commercial Demonstration dated June 13, 1989 by and between Chevron
Research Company and South Hampton Refining Company (incorporated
by reference to Exhibit 10(p) to the Company's Quarterly Report on
Form 10-Q/A for the quarter ended September 30, 1994 (File No. 0-
6247)).

10(q) Vehicle Lease Service Agreement dated September 28, 1989 by and
between Silsbee Trading and Transportation Corp. and South Hampton
Refining Company (incorporated by reference to Exhibit 10(q) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(r) One-Year Adjustable Interest Rate Note dated February 1, 1995,
effective December 31, 1994, from Texas Oil & Chemical Co. II, Inc.
to Silsbee State Bank, together with Deed of Trust of even date
therewith (incorporated by reference to Exhibit 10(s) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

39

10(s) Letter Agreement dated May 3, 1991 between Sheikh Kamal Adham and
the Company (incorporated by reference to Exhibit 10(t) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(t) Promissory Note dated February 17, 1994 from Hatem El-Khalidi to
the Company (incorporated by reference to Exhibit 10(u) to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(u) Lease Agreement dated as of August 13, 1993 by and among Pioche-Ely
Valley Mines, Inc., Minerals Processing, Inc. and World
Hydrocarbons, Inc. (incorporated by reference to Exhibit 10(v) to
the Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

10(v) Letter Agreement dated August 15, 1995 between Hatem El-Khalidi and
the Company.

10(w) Letter Agreement dated August 24, 1995 between Sheikh Kamal Adham
and the Company.

10(x) Letter Agreement dated October 23, 1995 between Sheikh Fahad Al-
Athel and the Company.

10(y) Letter Agreement dated December 6, 1995 between Ibrahim Khalidi and
the Company.

10(z) Letter Agreement dated March 11, 1996 by
and between South Hampton Refining Company and Den norske Bank AS.

13 1995 Annual Report to Stockholders.

With the exception of the information incorporated by reference
into Items 5, 6, 7, 8 and 14 of this Form 10-K, the 1995 Annual
Report to Stockholders is not to be deemed filed as part of this
Report.

40

21 Subsidiaries (incorporated by reference to Exhibit 21 to the
Company's Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1994 (File No. 0-6247)).

27 Financial Data Schedule.