press release

Unocal 1Q 2003 net earnings up 500% from 1Q 2002 on higher prices; production up 4.4% vs. 4Q 2002

Download 1Q earnings news release (pdf format)

El Segundo, Calif., April 24, 2003 - Unocal Corporation (NYSE: UCL) today reported net earnings in the first quarter of $134 million, or 52 cents per share (diluted). This compares with net earnings of $22 million, or 9 cents per share (diluted), in the same period a year ago and $96 million, or 38 cents per share (diluted), in the fourth quarter 2002.

Unocal's adjusted after-tax earnings were $229 million, or 87 cents per share (diluted). This compares with the Thompson/First Call consensus (published April 22, 2003) of 79 cents per share. In the first quarter 2002, Unocal's adjusted after-tax earnings were $43 million, or 17 cents per share (diluted). Adjusted after-tax earnings are net earnings excluding special items, earnings from discontinued operations and cumulative effects of accounting changes. The accounting changes reflect adoption of SFAS No. 143, Accounting for Asset Retirement Obligations. All of the special items are detailed in the Adjusted After-tax Earnings table.

CONSOLIDATED RESULTS (UNAUDITED) 1Q 2003 4Q 2002 1Q 2002
Millions of dollars except per share amounts

Earnings from continuing operations $ 217 $ 96 $ 22
Earnings from discontinued operations - - -
Cumulative effects of accounting changes (83) - -

Net earnings $ 134 $ 96 $ 22

Less: Earnings from discontinued operations - - -
Less: Cumulative effects of accounting changes (83) - -
Less: Special items (12) (27) (21)

Adjusted after-tax earnings $ 229 $ 123 $ 43

DILUTED EARNINGS PER SHARE DATA (UNAUDITED)
Net earnings per share:
Continuing operations $ 0.82 $ 0.38 $ 0.09
Discontinued operations - - -
Cumulative effects of accounting changes (0.30) - -

Total net earnings per share $ 0.52 $ 0.38 $ 0.09

Adjusted after-tax earnings per share $ 0.87 $ 0.48 $ 0.17

REVENUES FROM CONTINUING OPERATIONS (UNAUDITED) $ 1,827 $ 1,583 $ 1,049

First quarter earnings factors

Unocal's first quarter 2003 adjusted after-tax earnings (compared with 1Q 2002) reflected higher natural gas and liquids prices. These positive factors were offset partially by higher dry hole costs, depreciation and depletion rates, and lower liquids production. First-quarter revenues from continuing operations were $1.83 billion, up from $1.05 billion in the first quarter 2002, primarily due to higher commodity prices for natural gas and liquids.

Unocal's EBITDAX for the first quarter 2003 was $828 million, or $3.05 per share (diluted). This compares with $457 million, or $1.87 per share (diluted), for the same period in 2002. EBITDAX is net earnings before interest, taxes, depreciation, depletion and amortization, asset impairments, exploration expenses, dry hole costs, special items, earnings from discontinued operations and cumulative effects of accounting changes. EBITDAX is commonly used by investors and analysts to facilitate comparison of companies like Unocal that use the "successful efforts" accounting method with other exploration and production companies that use the "full-cost" method.

Worldwide, Unocal's consolidated net daily production in the first quarter 2003 averaged 471,000 barrels-of-oil equivalent (BOE) per day, compared with 477,000 BOE per day a year ago. When compared with the fourth quarter 2002, production was up 4.4 percent from 451,000 BOE per day. This reflected increased production in Thailand and a 14-percent increase in the Gulf Region, as production ramped back up from hurricane related shut-ins in the fourth quarter 2002 and new deep shelf discoveries on the Jalapeo and Rio Grande projects came on production.

Unocal's worldwide average liquids price, including hedging, was $29.99 per barrel, up from $18.86 in the first quarter 2002. The company's average worldwide realized price for natural gas, including hedging, was $3.90 per thousand cubic feet (mcf), compared with $2.46 per mcf a year ago.

Financial condition

Cash flow from operating activities for the first quarter 2003 was $685 million, compared with $271 million for 2002.

Capital spending was $429 million for the first quarter 2003, compared with $390 million in the same period a year ago.

The company's total consolidated long-term debt (including current maturities) was $2.92 billion at March 31, 2003. This compares with $3.0 billion at year-end 2002. Cash and cash equivalents were $356 million at the end of the first quarter, up from $168 million at the end of 2002.

Earnings and production outlook

For the second quarter 2003, Unocal is forecasting adjusted after-tax earnings of 65 to 75 cents per share (diluted). This forecast compares with the Thompson/First Call consensus (published April 22, 2003) of 56 cents per share for the quarter. The second quarter forecast assumes average NYMEX benchmark prices of $29.75 per barrel of crude oil and $5.50 per million British thermal units (mmBtu) for North America natural gas for the period.

Unocal's second quarter adjusted after-tax earnings are expected to change 4 cents per share for every $1 change in its average worldwide realized price for crude oil and 2 cents per share for every 10-cent change in its average realized North America natural gas price, excluding the effect of hedging activities. The forecast also assumes pretax dry hole costs in the second quarter of $40 to $50 million.

The company's current estimate for second quarter 2003 production is between 460,000 and 470,000 BOE per day. For the full-year 2003, Unocal is forecasting adjusted after-tax earnings of $3.00 to $3.40 per share (diluted). This forecast compares with the Thompson/First Call consensus (published April 22, 2003) of $2.26 per share for the year. The full-year 2003 forecast assumes average NYMEX benchmark prices of $29.50 per barrel of crude oil and $5.90 per mmBtu for North America natural gas. Unocal's full-year adjusted after-tax earnings are expected to change 14 cents per share for every $1 change in its average worldwide realized price for crude oil and 7 cents per share for every 10-cent change in its average realized North America natural gas price, excluding the effect of hedging activities. The forecast also assumes pretax dry hole costs of $155 to $185 million and that pretax pension-related expenses will increase over 2002 by approximately $55 million to $60 million.

Unocal has completed the divestiture of various properties in Canada, onshore U.S. and the Gulf of Mexico and has additional property divestitures pending or planned. So far this year, net proceeds from the completed divestitures are $64 million, with an associated production loss of approximately 5,000 BOE per day.

Adjusted for the divestitures, full-year 2003 production is expected to average 475,000 to 490,000 BOE per day. Unocal continues to expect production will be at the lower end of the forecasted range. The company will make additional adjustments in this range as further divestitures are completed. The expected increase over the 2002 level reflects the start of new oil production from the West Seno field in Indonesia late in the second quarter.

Unocal's total actual production for the year could be impacted by cost recovery volume fluctuations under its various foreign production-sharing contracts due to changes in commodity prices, changes in demand for gas in Thailand and production and exploration performance in the Gulf of Mexico.

The second quarter and full-year adjusted after-tax earnings forecasts exclude special items. The first quarter special items are detailed in the Adjusted After-tax Earnings table. Because of the inherent uncertainty related to special items, determining whether or when they will occur and quantifying their dollar impact, Unocal is unable to predict them and therefore does not forecast net earnings.

About Unocal Corporation

Unocal is one of the world's leading independent natural gas and crude oil exploration and production companies. The company's principal oil and gas activities are in North America and Asia.

Conference call/financial database

Unocal will webcast its quarterly earnings conference call today at 1 p.m. PDT (4 p.m. EDT) over the Internet. To listen to the live webcast, go to the Investor Information section of the Unocal web site. Replays of the conference call, including questions and answers, will be available.

Complete detailed financial tables for the first quarter 2003 and the comparable prior periods are available in the "Quarterly Fact Book," which is posted in the Data Warehouse in the Investor Information section of the company's web site. The Quarterly Fact Book is also available upon request from Unocal Investor Relations.

This news release contains certain forward-looking statements about expected adjusted after-tax earnings, production rates, commodity prices, dry hole costs, divestitures and pension costs. These statements are not guarantees of future performance. The statements are based upon Unocal's current expectations and beliefs and are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Actual results could differ materially as a result of changes in commodity prices; the levels of the company's oil and gas production; the extent of the company's operating cash flow and other capital resources available to fund its capital expenditures; regulatory, geological, operating and economic considerations; and other factors discussed in Unocal's 2002 Annual Report on Form 10-K and subsequent reports filed with the U.S. Securities and Exchange Commission. Unocal undertakes no obligation to update the information in this news release.

Investors are urged to consider closely the disclosure in Unocal's 2002 Annual Report on Form 10-K and other reports filed with the SEC (SEC File No. 1-8483). Copies of the company's SEC filings are available from the company by calling 800-252-2233 or from the SEC by calling 800-SEC-0330. The reports are also available on the Unocal web site.

    CONSOLIDATED EARNINGS (UNAUDITED)                   For the Three Months
                                                          Ended March 31,
    Millions of dollars except per share amounts           2003       2002
    Revenues
    Sales and operating revenues                          $1,813     $1,035
    Interest, dividends and miscellaneous income              11         12
    Gain on sales of assets                                    3          2
        Total revenues                                     1,827      1,049
    Costs and other deductions
    Crude oil, natural gas and product purchases             684        295
    Operating expense                                        294        299
    Administrative and general expense                        51         43
    Depreciation, depletion and amortization                 260        224
    Asset impairments                                         --         --
    Dry hole costs                                            71         28
    Exploration expense                                       55         59
    Interest expense                                          38         51
    Property and other operating taxes                        22         16
    Distributions on convertible preferred
     securities of subsidiary trust                            8          8
        Total costs and other deductions                   1,483      1,023
    Earnings from equity investments                          43         37
    Earnings from continuing operations before
     income taxes and minority interests                     387         63
    Income taxes                                             168         40
    Minority interests                                         2          1
    Earnings from continuing operations                      217         22
    Earnings from discontinued operations                     --         --
    Cumulative effects of accounting changes (a)             (83)        --
        Net earnings                                        $134        $22

    Basic earnings per share of common stock (b)
        Continuing operations                              $0.84      $0.09
        Net earnings                                       $0.52      $0.09
    Diluted earnings per share of common stock (c)
        Continuing operations                              $0.82      $0.09
        Net earnings                                       $0.52      $0.09
    Cash dividends declared per share of common stock      $0.20      $0.20
    (a) Net of tax (benefit)                                 (48)        --
    (b) Basic weighted average shares outstanding
     (in thousands)                                      258,005    244,207
    (c) Diluted weighted average shares outstanding
     (in thousands)                                      271,729    245,247


    CONDENSED CONSOLIDATED BALANCE SHEET
     (UNAUDITED)                                At March 31,  At December 31,
    Millions of dollars                             2003            2002
    Assets
    Cash and cash equivalents                       $356            $168
    Other current assets - net                     1,354           1,207
    Investments and long-term
     receivables - net                             1,038           1,044
    Properties - net                               8,114           7,879
    Goodwill                                         125             122
    Other assets                                     396             340
        Total assets                             $11,383         $10,760

    Liabilities and Stockholders' Equity
    Current liabilities (a)                       $1,869          $1,632
    Long-term debt and capital leases              2,918           3,002
    Deferred income taxes                            631             593
    Accrued abandonment, restoration and
     environmental liabilities                       880             622
    Other deferred credits and liabilities           844             816
    Minority interests                               275             275

    Convertible preferred securities of
     a subsidiary trust                              522             522

    Stockholders' equity                           3,444           3,298
        Total liabilities and stockholders'
         equity                                  $11,383         $10,760
    (a) Includes current portion of LTD:               6               6


    CONDENSED CONSOLIDATED CASH FLOWS
     (UNAUDITED)                                         For the Three Months
                                                            Ended March 31,
    Millions of dollars                                    2003        2002

    Cash Flows from Operating Activities
    Net earnings                                            $134        $22
    Adjustments to reconcile net earnings to
     net cash provided by operating activities
        Depreciation, depletion and amortization             260        224
        Asset impairments                                     --         --
        Dry hole costs                                        71         28
        Amortization of exploratory leasehold costs           24         22
        Deferred income taxes                                 30        (23)
        Gain on sales of assets (pre-tax)                     (3)        (2)
        Earnings applicable to minority interests              2          1
        Cumulative effects of accounting changes              83         --
        Other                                                 30        (12)
     Working capital and other changes related
      to operations                                           54         11
          Net cash provided by operating activities          685        271

    Cash Flows from Investing Activities
        Capital expenditures (includes dry hole costs)      (429)      (390)
        Proceeds from sales of assets                         66         28
        Proceeds from sale of discontinued operations         --          2
          Net cash used in investing activities             (363)      (360)

    Cash Flows from Financing Activities
        Long-term borrowings                                  16        399
        Reduction of long-term debt and
         capital lease obligations                          (100)      (123)
        Minority interests                                    (2)        (2)
        Proceeds from issuance of common stock                 1         14
        Dividends paid on common stock                       (52)       (49)
        Other                                                  3         (2)
          Net cash provided (used) by financing
           activities                                       (134)       237
    Net increase in cash and cash equivalents                188        148
    Cash and cash equivalents at beginning of year           168        190
    Cash and cash equivalents at end of period              $356       $338


    NET EARNINGS AND ADJUSTED
     AFTER-TAX EARNINGS                1st Q 2003            4th Q 2002
     BY BUSINESS SEGMENT
    (UNAUDITED)                              Adjusted               Adjusted
                                    Net      After-Tax     Net     After-Tax
    Millions of dollars          Earnings   Earnings(a)  Earnings Earnings(a)
    Exploration & Production
      North America
        U.S. Lower 48 (b)          $111        $111        $(4)       $41
        Alaska                       15          15           1         1
        Canada                       24          22           5         6
    International
        Far East                    121         121         111       111
        Other                        21          21          29        29
    Trade                            (9)         (9)          3         3
    Midstream                        18          18          45        15
    Geothermal and Power
     Operations                      12          12           5         5
    Corporate and Other
        Administrative and
         General                    (23)        (23)        (18)      (18)
        Interest Expense - Net      (31)        (31)        (35)      (35)
        Environmental and
         Litigation                 (17)         (3)        (26)       (5)
        Other                       (25)        (25)        (20)      (30)
    After-tax earnings (loss)
     from continuing operations     217         229          96       123
    After-tax earnings from
     discontinued operations         --          --          --        --
    Cumulative effects of
     accounting changes             (83)         --          --        --
    After-tax earnings (loss)      $134        $229         $96      $123

    (a) For a reconciliation
         to net earnings,
         see the Adjusted
         After-Tax Earnings
         table.
    (b) Includes earnings
         (loss) from:
        Onshore / Shelf             142         142          12        57
        Deepwater                   (31)        (31)        (16)      (16)


    OPERATING HIGHLIGHTS                           1Q         4Q       1Q
                                                  2003       2002     2002
    North America Net Daily Production
      Liquids (thousand barrels)
        U.S. Lower 48 (a) (b)                        48         46       56
        Alaska                                       22         23       25
        Canada                                       18         18       18
            Total liquids                            88         87       99
      Natural gas - dry basis
       (million cubic feet)
        U.S. Lower 48 (a) (b)                       700        659      746
        Alaska                                       61         68      101
        Canada                                       97         91       90
            Total natural gas                       858        818      937
    North America Average Prices
     (excluding hedging activities) (c) (d)
      Liquids (per barrel)
        U.S. Lower 48                            $30.53     $25.20   $18.36
        Alaska                                   $33.48     $26.96   $18.61
        Canada                                   $28.44     $21.84   $16.52
            Average                              $30.77     $24.94   $18.06
      Natural gas (per mcf)
        U.S. Lower 48                             $6.29      $3.77    $2.23
        Alaska                                    $1.20      $1.20    $1.57
        Canada                                    $5.64      $3.50    $2.34
            Average                               $5.83      $3.51    $2.16
    North America Average Prices
     (including hedging activities) (c) (d)
      Liquids (per barrel)
        U.S. Lower 48                            $28.97     $25.19   $18.54
        Alaska                                   $33.48     $26.96   $18.61
        Canada                                   $28.44     $21.84   $16.52
            Average                              $29.90     $24.94   $18.17
      Natural gas (per mcf)
        U.S. Lower 48                             $5.61      $3.75    $2.47
        Alaska                                    $1.20      $1.20    $1.57
        Canada                                    $5.33      $3.31    $2.25
            Average                               $5.25      $3.47    $2.35
    (a) Includes proportional interests
         in production of equity investees.
    (b) Includes minority interests of :
                                       Liquids        1          3        9
                                   Natural gas       10         41       98
                        Barrels oil equivalent        2         10       25
    (c) Excludes Trade segment margins.
    (d) Excludes gains/losses on
         derivative positions not
         accounted for as hedges
         and ineffective portions of hedges.


    OPERATING HIGHLIGHTS (CONTINUED)                 1Q        4Q       1Q
                                                    2003      2002     2002
    International Net Daily Production (e)
      Liquids (thousand barrels)
        Far East                                      55        53       53
        Other (a)                                     21        21       20
            Total liquids                             76        74       73
      Natural gas - dry basis
      (million cubic feet)
        Far East                                     875       823      822
        Other (a)                                    107        96       75
            Total natural gas                        982       919      897
    International Average Prices (f)
      Liquids (per barrel)
        Far East                                  $29.69    $25.36   $19.28
        Other                                     $32.21    $27.55   $21.96
            Average                               $30.11    $26.01   $19.86
      Natural gas (per mcf)
        Far East                                   $2.76     $2.77    $2.59
        Other                                      $2.83     $2.83    $2.48
        Average                                    $2.77     $2.78    $2.58


    Worldwide Net Daily Production (a) (b) (e)
      Liquids (thousand barrels)                     164       161      172
      Natural gas - dry basis
       (million cubic feet)                        1,840     1,737    1,834
      Barrels oil equivalent (thousands)             471       451      477
    Worldwide Average Prices
     (excluding hedging activities) (c) (d)
      Liquids (per barrel)                        $30.49    $25.44   $18.80
      Natural gas (per mcf)                        $4.17     $3.12    $2.37
    Worldwide Average Prices
     (including hedging activities) (c) (d)
      Liquids (per barrel)                        $29.99    $25.44   $18.86
      Natural gas (per mcf)                        $3.90     $3.10    $2.46
    (a) Includes proportional interests
         in production of equity investees.
    (b) Includes minority interests of :
                                    Liquids            1         3        9
                                Natural gas           10        41       98
                     Barrels oil equivalent            2        10       25
    (c) Excludes Trade segment margins.
    (d) Excludes gains/losses on derivative
         positions not accounted for as
         hedges and ineffective portions
         of hedges.
    (e) International production is
         presented utilizing the
         economic interest method.
    (f) International did not have
         any hedging activities.


    ADJUSTED AFTER-TAX EARNINGS (UNAUDITED)            1Q      4Q      1Q
    Millions of dollars except per share amounts      2003    2002    2002
    Net earnings                                      $134     $96    $22
    Less:
      Earnings from discontinued operations             --      --     --
      Cumulative effects of accounting changes         (83)     --     --
    Earnings from continuing operations                217      96     22
    Less: Special items
      Asset sales
       (E&P - North America - U.S. Lower 48)            --     (28)     2
      Asset sales (Midstream)                           --      30     --
      Asset sales (Corporate & Other)                   --      14     --
      Environmental and litigation provisions
       (Corporate & Other)                             (14)    (25)   (21)
      Insurance settlements
       (Corporate & Other)                              --      --      2
      Minority interests acquisition
       (E&P - North America - U.S. Lower 48)            --      (8)    --
      Trading derivatives -- non-hedging
       (E&P - North America - Canada)                    2      (1)    (4)
      Uninsured losses
       (E&P - North America - U.S. Lower 48)            --      (9)    --
      Total special items                              (12)    (27)   (21)
        Adjusted after-tax earnings                   $229    $123    $43
        Adjusted after-tax earnings per share        $0.87   $0.48  $0.17


    The preceding table reconciles adjusted after-tax earnings to net
    earnings.  Special items represent certain significant matters which
    positively or negatively impact net earnings that management determines to
    be not representative of the company's ongoing operations.  Examples of
    such items which have generally been excluded in determining adjusted
    after-tax earnings include: gain/loss from major asset sales;
    environmental remediation costs primarily related to inactive, closed or
    previously owned company facilities and third party sites; costs or
    settlements associated with major restructuring plans; litigation
    settlement costs primarily associated with former company operations or
    closed/inactive facilities; significant asset impairments due to changes
    in commodity prices; material damage to company facilities or operations
    due to fire, explosion, earthquakes, storms or other 'acts of god' not
    covered by insurance; certain costs associated with major acquisitions
    including litigation and significant trading derivatives; insurance
    recoveries associated with former company operations or for costs incurred
    in prior years.  Other companies may define special items differently;
    hence, we cannot assure that adjusted after-tax earnings are comparable
    with similarly titled amounts reported by other companies.


    EBITDAX (UNAUDITED)                               1Q       4Q      1Q
    Millions of dollars except per share amounts     2003     2002    2002
    Net Earnings                                     $134      $96     $22
    Less:
      Earnings from discontinued operations            --       --      --
      Cumulative effects of accounting changes        (83)       -      --
      Special items                                   (12)     (27)    (21)
    Adjusted after-tax earnings                       229      123      43
    Add-backs to adjusted after-tax earnings:
        Depreciation, depletion and amortization      260      249     224
        Asset impairments                              --       20      --
        Dry hole costs                                 71       26      28
        Exploration expenses
         (including amortization of
          undeveloped leasehold costs)                 55       66      59
        Current income taxes                          138       81      62
        Deferred income taxes                          37       10     (10)
        Interest expense (a)                           38       45      51
            EBITDAX                                  $828     $620    $457
    EBITDAX per share (diluted)                     $3.05    $2.43   $1.87
    (a) Net of capitalized interest of:                16       13       9

Updated: April 2003