press release

Unocal 1Q earnings up 101%

Download 1Q 2004 earnings news release (pdf format)

El Segundo, Calif., April 28, 2004 - Unocal Corporation (NYSE: UCL) today reported preliminary net earnings for the first quarter 2004 of $269 million, or $1.00 per share (diluted), 101 percent above the $134 million, or 52 cents per share (diluted), reported in the same period a year ago.

Unocal's preliminary adjusted after-tax earnings for the first quarter 2004 were $239 million, or 89 cents per share (diluted). This compares with the Thomson/First Call median of analyst estimates (published April 26, 2004) of 80 cents per share. Unocal's adjusted after-tax earnings were $229 million, or 87 cents per share (diluted), in the first quarter 2003, and $167 million, or 63 cents per share (diluted), in the fourth quarter 2003. Adjusted after-tax earnings are net earnings excluding special items, earnings from discontinued operations and cumulative effects of accounting changes.

 
     CONSOLIDATED RESULTS (UNAUDITED)           1st Q       4th Q       1st Q
     Millions of dollars except per share
      amounts                                   2004        2003        2003
    Earnings from continuing operations         $269        $172        $217
    Earnings from discontinued operations         --           8          --
    Cumulative effect of accounting changes       --          --         (83)
    Net earnings                                 269         180         134
       Less:  Earnings from discontinued
        operations                                --           8          --
       Less:  Cumulative effect of
        accounting changes                        --          --         (83)
       Less:  Special items                       30           5         (12)
    Adjusted after-tax earnings                 $239        $167        $229
    DILUTED EARNINGS PER SHARE DATA (UNAUDITED)
    Net earnings per share:
       Continuing operations                   $1.00       $0.65       $0.82
       Discontinued operations                    --        0.03          --
       Cumulative effect of accounting changes    --          --       (0.30)
    Total net earnings per share               $1.00       $0.68       $0.52
    Adjusted after-tax earnings per share      $0.89       $0.63       $0.87
    REVENUES FROM CONTINUING OPERATIONS
     (UNAUDITED)                              $1,892      $1,589      $1,789

"We had an outstanding first quarter, recording one the highest profit levels in the company's history," said Charles R. Williamson, Unocal chairman, chief executive officer and president. "We lowered exploration expense, improved results from non-E&P segments and reduced our overall financings."

Williamson went on to say, "We continued to execute on our major development programs in the Caspian Sea, Thailand, Bangladesh and Indonesia - programs that we believe will generate the production growth we are forecasting for 2005 and 2006."

Unocal's operations highlights for 1Q 2004

  • Drilled significant deepwater discovery in the Gulf of Mexico (Puma) and successful appraisal wells in Indonesia (Gehem and Gula).
  • Drilling of two high-impact deepwater wells - Tobago and Mad Dog Deep - in the Gulf of Mexico.
  • Continued ramp-up of production on the deepwater West Seno project in Indonesia, although slower than forecast.
  • Continued discussion and negotiation on terms for supplying higher volumes of natural gas in both the short and long term in Thailand.
  • Submitted development plan to sell natural gas from the Bibiyana field for Petrobangla, the state oil company, in Bangladesh.
  • Received $60 million in cash for the transfer of Sarulla geothermal interest to Indonesia's state electric utility.
  • Progressed on construction of the Phase 1 and 2 developments of the Azerbaijan International Operating Company (AIOC) project in the Caspian Sea (Unocal, 10.28% working interest); first oil at the wellhead expected at the end of 2004 or early 2005 for Phase 1.
  • Completed 60 percent of construction of the Baku-Tbilisi-Ceyhan export pipeline from the Caspian Sea (Unocal, 8.9% equity interest).
  • Reached agreement to sell certain fee mineral interests in the U.S. for approximately $190 million cash.

1Q 2004 financial and operating details

In the first quarter 2004, after-tax special items included $27 million in gains from the sale of certain E&P assets in North America and geothermal assets in Indonesia, and a $15 million litigation settlement related to a previous asset sale. Partially offsetting these gains were environmental and litigation provisions of $12 million. All of the special items are detailed in the Adjusted After-tax Earnings Reconciliation table included at the end of this news release.

Unocal's first quarter 2004 adjusted after-tax earnings (compared with 1Q 2003) reflected higher worldwide natural gas prices and lower dry hole costs. These positive factors were partially offset by lower North America natural gas and liquids production.

In addition, the first quarter 2003 net earnings had included an after-tax charge of $83 million, or 30 cents per share (diluted), for the cumulative effect of adopting Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations."

Worldwide hydrocarbon liquids and natural gas production for the first quarter 2004 averaged 409,000 barrels of oil equivalent (BOE) per day, compared with 471,000 BOE per day in the same period a year ago. The production decline was due to the sale of oil and gas producing assets in North America during 2003, which accounted for nearly 50,000 BOE per day, and lower contractor's cost recovery barrels from certain production-sharing contracts (PSC) in Asia (as a result of higher commodity prices and recovery of sunk costs), which reduced production by about 12,000 BOE per day.

First-quarter 2004 worldwide price realizations (including hedging activities) for natural gas averaged $4.00 per thousand cubic feet (mcf), up from $3.90 during the prior year's first quarter. The company's first quarter 2004 worldwide liquids price realizations (including hedging activities) were $30.64 per barrel, up from $29.99 in the first quarter 2003. Hedging activities in the 2004 first quarter decreased worldwide liquids realizations by $1.00 per barrel, while increasing worldwide natural gas realizations by 17 cents per mcf.

Total revenues for the 2004 first quarter were $1.89 billion, up from $1.79 billion recorded for the same period a year ago.

Unocal's EBITDAX for the first quarter 2004 was $756 million, or $2.73 per share (diluted). This compares with $828 million, or $3.05 per share (diluted), for the same period in 2003. 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.

The company's total consolidated long-term debt (including current maturities) was $3.26 billion at March 31, 2004. Cash and cash-equivalents were $760 million at March 31, 2004. The increase in debt outstanding during the first quarter reflects the deconsolidation of Unocal Capital Trust due to an accounting rule change issued by the Financial Accounting Standards Board. As a result, the $522 million obligation for the convertible preferred securities has been removed from the balance sheet and replaced by a liability of $538 million in 6-1/4 percent junior subordinated debentures of Unocal payable to the trust.

2Q 2004 outlook

For the second quarter 2004, Unocal is forecasting adjusted after-tax earnings of 65 to 75 cents per share (diluted). This forecast compares with the Thomson/First Call median of analyst estimates (published April 26, 2004) of 72 cents per share for the second quarter 2004. Unocal's second quarter forecast assumes average NYMEX benchmark prices of $36.50 per barrel of crude oil and $5.70 per million British thermal units (mmBtu) for North America natural gas for the period.

Unocal's second quarter 2004 adjusted after-tax earnings are expected to change $8 million for every $1 change in its average worldwide realized price for crude oil and $3 million 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 $25 to $35 million.

The company's current estimate for second quarter 2004 production is between 410,000 and 420,000 BOE per day. Unocal's current estimate for the full-year 2004 production is about 425,000 BOE per day. The full-year 2004 outlook reflects lower contractor's cost recovery barrels from PSCs due to higher commodity prices, slower than expected production ramp-up from the West Seno field in Indonesia, and continued suspension of exploration drilling on the Gulf of Mexico deep shelf.

The second-quarter adjusted after-tax earnings forecast excludes special items, discontinued operations, and accounting changes. Because of the inherent uncertainty related to these items, determining whether or when they will occur and quantifying their dollar impact, Unocal does not believe it is able to provide a meaningful forecast of 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 Relations section of the Unocal web site, www.unocal.com. Replays of the conference call, including questions and answers, will be available.

Complete detailed financial tables for the first quarter 2004 and the comparable prior periods are available in the "Quarterly Fact Book," which is posted in the Data Warehouse in the Investor Relations section of the company's web site. The Quarterly Fact Book is also available upon request from Unocal Investor Relations.

Forward-Looking Statements; Preliminary 2004 First Quarter Results

This news release contains forward-looking statements, which may be identified by words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "forecasts," "will" and words of similar import. These forward-looking statements include, but are not limited to, statements regarding expected project developments, exploratory drilling activity and dry hole costs, production rates and timing, commodity prices, future sales and transactions, and expected adjusted after-tax earnings.

These statements are not guarantees of future performance or outcomes. They 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 factors including 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, political, geological, operating and economic considerations; performance by third parties of their contractual obligations; and other factors discussed in Unocal's 2003 Annual Report on Form 10-K, as amended, and subsequent reports filed with the U.S. Securities and Exchange Commission (SEC).

Investors are urged to consider closely the disclosures in Unocal's 2003 Annual Report on Form 10-K, as amended, 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, www.unocal.com.

In addition, disclosures in this news release, including in the attached tables, regarding Unocal's first quarter 2004 financial results are preliminary. These disclosures are subject to change in connection with Unocal's preparation and filing of its Form 10-Q for the first quarter 2004.

Unocal undertakes no obligation to update the forward-looking statements or first quarter 2004 financial results in this news release, including the attached tables, to reflect future events or circumstances. All such statements are expressly qualified in their entirety by this cautionary statement.

Supplemental Non-GAAP Financial Measures

The news release includes certain "non-GAAP financial measures" as defined under SEC regulations. Specifically, Unocal has referred to (1) adjusted after-tax earnings and (2) EBITDAX.

Adjusted after-tax earnings are defined as net earnings excluding special items, earnings from discontinued operations and cumulative effects of accounting changes. 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 events 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; and insurance recoveries associated with former company operations or for costs incurred in prior years.

Unocal's management believes adjusted after-tax earnings to be useful to investors and analysts as it facilitates a focus on the company's ongoing operations. The measure also allows for convenient comparisons to the company's prior reporting periods, as well as the results of ongoing operations of other companies in the exploration and production industry that utilize the "successful efforts" method of accounting. Adjusted after-tax earnings is not a substitute for net earnings determined in accordance with GAAP as a measure of profitability, because the special items excluded from adjusted after-tax earnings do in fact positively or negatively impact net earnings. Other companies may define special items differently and the Thomson/First Call median of analyst estimates may not use a similar definition; hence, adjusted after-tax earnings may not be comparable with similarly titled amounts reported by other companies or analyst estimates reported by Thomson/First Call.

The news release also includes information regarding EBITDAX, which is defined as 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. Unocal's management believes this measure is helpful to investors and analysts because it facilitates a comparison of companies like Unocal that use the "successful efforts" accounting method with other companies in the exploration and production industry that utilize the "full-cost" method of accounting. EBITDAX is not a substitute for net earnings determined in accordance with GAAP as a measure of profitability.

A quantitative reconciliation of adjusted after-tax earnings and EBITDAX to GAAP net earnings is found in this news release, including certain of the tables accompanying the text.

    CONSOLIDATED EARNINGS (UNAUDITED)                  For the Three Months
                                                         Ended March 31,
     Millions of dollars except per share
      amounts                                        2004              2003
     Revenues
     Sales and operating revenues                   $1,837            $1,775
     Interest, dividends and miscellaneous income       11                11
     Gain on sales of assets                            44                 3
          Total revenues                             1,892             1,789
     Costs and other deductions
     Crude oil, natural gas and product purchases      750               646
     Operating expense                                 288               294
     Administrative and general expense                 63                51
     Depreciation, depletion and amortization          232               260
     Impairments                                         5                --
     Dry hole costs                                     25                71
     Exploration expense                                50                55
     Interest expense                                   41                38
     Property and other operating taxes                 20                22
     Distributions on convertible preferred securities
      of subsidiary trust                               --                 8
          Total costs and other deductions           1,474             1,445
     Earnings from equity investments                   37                43
     Earnings from continuing operations before
      income taxes and minority interests              455               387
     Income taxes                                      181               168
     Minority interests                                  5                 2
     Earnings from continuing operations               269               217
     Cumulative effect of accounting
      changes (a)                                       --               (83)
          Net earnings                                $269              $134

    Basic earnings per share of common stock (b)
          Continuing operations                      $1.03             $0.84
          Cumulative effect of accounting changes       --             (0.32)
          Net earnings                               $1.03             $0.52

    Diluted earnings per share of common stock (c)
          Continuing operations                      $1.00             $0.82
          Cumulative effect of accounting changes       --             (0.30)
          Net earnings                               $1.00             $0.52

    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)                           261,974           258,005
     (c)  Diluted weighted average shares
          outstanding (in thousands)               276,889           271,729


    CONDENSED CONSOLIDATED BALANCE SHEET
    (UNAUDITED)                                At March 31,  At December  31,
    Millions of dollars                               2004              2003
    Assets
    Cash and cash equivalents                         $760              $404
    Other current assets - net                       1,491             1,587
    Investments and long-term receivables - net        871               892
    Properties - net                                 8,399             8,324
    Goodwill                                           131               131
    Other assets                                       484               460
       Total assets                                $12,136           $11,798
    Liabilities and Stockholders' Equity
    Current liabilities (a)                         $2,046            $2,085
    Long-term debt                                   3,199             2,635
    Deferred income taxes                              721               704
    Accrued abandonment, restoration and
     environmental liabilities                         860               844
    Other deferred credits and
     liabilities                                     1,013               960
    Minority interests                                  47                39
    Convertible preferred securities of a
     subsidiary trust                                   --               522
    Stockholders' equity                             4,250             4,009
       Total liabilities and
        stockholders' equity                       $12,136           $11,798
    (a)  Includes current portion of LTD of:            62               248


    CONSOLIDATED CASH FLOWS (UNAUDITED)                For the Three Months
                                                         Ended March 31,
    Millions of dollars                               2004              2003
    Cash Flows from Operating Activities
    Net earnings                                      $269              $134
    Adjustments to reconcile net earnings to
        net cash provided by operating activities
          Depreciation, depletion and amortization     232               260
          Impairments                                    5                --
          Dry hole costs                                25                71
          Amortization of exploratory leasehold costs   16                24
          Deferred income taxes                         28                30
          Gain on sales of assets                      (44)               (3)
          Pension expense net of contributions          23                20
          Restructuring provisions net of payments      (7)               --
          Cumulative effect of accounting changes       --                83
          Other                                         (6)               12
    Working capital and other changes related to
     operations
         Accounts and notes receivable                  65              (122)
         Inventories                                    31                 6
         Accounts payable                               29                86
         Taxes payable                                 106               123
         Other                                         (29)              (39)
                Net cash provided by operating
                 activities                            743               685
    Cash Flows from Investing Activities
       Capital expenditures (includes dry hole costs) (360)             (429)
       Proceeds from sales of assets                    78                66
       Other                                            52                --
                Net cash used in investing activities (230)             (363)
    Cash Flows from Financing Activities
       Long-term borrowings                             40                16
       Reduction of long-term debt and capital lease
        obligations                                   (196)             (100)
       Minority interests                               --                (2)
       Repurchases of common stock                     (20)               --
       Proceeds from issuance of common stock           51                 1
       Dividends paid on common stock                  (52)              (52)
       Loans to key employees                           20                 3
             Net cash used in financing activities    (157)             (134)
    Net increase in cash and cash equivalents          356               188
    Cash and cash equivalents at beginning of year     404               168
    Cash and cash equivalents at end of period        $760              $356


    NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS
     BY BUSINESS SEGMENT (UNAUDITED)
                                  1st Q 2004                4th Q 2003
                                           Adjusted                Adjusted
                               Net        After-Tax      Net      After-Tax
     Millions of dollars     Earnings    Earnings (a)  Earnings Earnings (a)
     Exploration & Production
      North America
       U.S.                   $116          $95          $77          $74
       Canada                   12           12           32            7
        Total North America    128          107          109           81
      International
       Asia                    158          158          126          126
       Other                    17           17           12           12
        Total International    175          175          138          138
     Total Exploration &
      Production               303          282          247          219
     Midstream & Marketing      23           23           21           17
     Geothermal                 37           16           12           12
     Corporate and Other
      Administrative and
      General                  (27)         (27)         (26)         (26)
      Interest Expense - Net   (32)         (32)         (54)         (26)
      Environmental and
       Litigation              (16)          (5)         (24)          (8)
      Other                    (19)         (18)          (4)         (21)
     After-tax earnings from
      continuing operations    269          239          172          167
     After-tax earnings from
      discontinued operations   --           --            8           --
     After-tax earnings       $269         $239         $180         $167
     (a)  For a reconciliation to net earnings, see the Adjusted After-Tax
          Earnings Reconciliation table.


     NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS
     BY BUSINESS SEGMENT (UNAUDITED)
                                   1st Q 2004              1st Q 2003
                                          Adjusted                Adjusted
                               Net       After-Tax      Net      After-Tax
     Millions of dollars     Earnings   Earnings (a)  Earnings Earnings (a)
     Exploration & Production
      North America
       U.S.                   $116          $95         $126         $126
       Canada                   12           12           24           22
        Total North America    128          107          150          148
      International
       Asia                    158          158          132          132
       Other                    17           17           10           10
        Total International    175          175          142          142
     Total Exploration &
      Production               303          282          292          290
     Midstream & Marketing      23           23            9            9
     Geothermal                 37           16           12           12
     Corporate and Other
      Administrative and
       General                 (27)         (27)         (23)         (23)
      Interest Expense - Net   (32)         (32)         (31)         (31)
      Environmental and
       Litigation              (16)          (5)         (17)          (3)
      Other                    (19)         (18)         (25)         (25)
     After-tax earnings from
      continuing operations    269          239          217          229
     Cumulative effect of
      accounting changes        --           --          (83)          --
     After-tax earnings       $269         $239         $134         $229
     (a)  For a reconciliation to net earnings, see the Adjusted After-Tax
          Earnings Reconciliation table.


    OPERATING HIGHLIGHTS                              1st Q             1st Q
                                                      2004              2003
    North America Net Daily Production
      Liquids (thousand barrels)
         U.S. (a)                                       55                70
         Canada                                         17                18
              Total liquids                             72                88
      Natural gas - dry basis (million
       cubic feet)
         U.S. (a)                                      515               761
         Canada                                         84                97
              Total natural gas                        599               858
    North America Average Prices
     (excluding hedging activities) (b)
      Liquids (per barrel)
         U. S.                                      $32.66            $31.39
         Canada                                     $28.51            $28.44
              Average                               $31.71            $30.77
      Natural gas (per mcf)
         U. S.                                       $5.04             $5.86
         Canada                                      $5.38             $5.64
              Average                                $5.09             $5.83
    North America Average Prices
     (including hedging activities) (b)
      Liquids (per barrel)
         U. S.                                      $29.87            $30.29
         Canada                                     $28.51            $28.44
              Average                               $29.56            $29.90
      Natural gas (per mcf)
         U. S.                                       $5.57             $5.24
         Canada                                      $5.08             $5.33
              Average                                $5.50             $5.25
    (a)  Includes proportional interests in production of equity investees.
    (b)  Excludes gains/losses on derivative positions not accounted for as
         hedges and ineffective portions of hedges.


    OPERATING HIGHLIGHTS (CONTINUED)                  1st Q             1st Q
                                                      2004              2003
    International Net Daily Production (c)
      Liquids  (thousand barrels)
         Asia                                           66                56
         Other (a)                                      20                20
              Total liquids                             86                76
      Natural gas - dry basis (million cubic feet)
         Asia                                          884               960
         Other (a)                                      25                22
              Total natural gas                        909               982
    International Average Prices (d)
      Liquids (per barrel)
         Asia                                       $31.44            $29.69
         Other                                      $32.12            $32.44
              Average                               $31.57            $30.11
      Natural gas (per mcf)
         Asia                                        $2.97             $2.76
         Other                                       $4.29             $4.15
              Average                                $2.98             $2.77

    Worldwide Net Daily Production (a) (c)
      Liquids  (thousand barrels)                      158               164
      Natural gas - dry basis (million
       cubic feet)                                   1,508             1,840
      Barrels oil equivalent (thousands)               409               471
    Worldwide Average Prices (excluding
     hedging activities) (b)
      Liquids (per barrel)                          $31.64            $30.49
      Natural gas (per mcf)                          $3.83             $4.17
    Worldwide Average Prices (including
     hedging activities) (b)
      Liquids (per barrel)                          $30.64            $29.99
      Natural gas (per mcf)                          $4.00             $3.90
    (a)  Includes proportional interests in production of equity investees.
    (b)  Excludes gains/losses on derivative positions not accounted for as
         hedges and ineffective portions of hedges.
    (c)  International production is  presented utilizing the economic
         interest method.
    (d)  International did not have any hedging activities.


    ADJUSTED AFTER-TAX EARNINGS
    RECONCILIATION (UNAUDITED)                  1st Q       4th Q       1st Q
    Millions of dollars except per share
     amounts                                    2004        2003        2003
    Net earnings                                $269        $180        $134
    Less:
       Earnings from discontinued operations      --           8          --
       Cumulative effect of accounting changes    --                     (83)
    Earnings from continuing operations          269         172         217
    Less: Special items
       E&P - North America - U.S.
            Asset sales                            6           3          --
            Litigation settlement                 15          --          --
       E&P - North America - Canada
            Statutory tax rate change             --          25          --
            Derivatives -- non-hedging            --          --           2
       Midstream & Marketing
            Canadian statutory tax rate change    --           4          --
       Geothermal
            Asset sales                           21          --          --
       Corporate & Other
            Environmental and litigation
             provisions                          (12)        (15)        (14)
            Debt repurchase premium               --         (28)         --
            Insurance settlements                 --          17          --
            Restructuring                         --          (1)         --
    Total special items                           30           5         (12)
         Adjusted after-tax earnings            $239        $167        $229
         Adjusted after-tax earnings per
          share (diluted)                      $0.89       $0.63       $0.87


     EBITDAX RECONCILIATION (UNAUDITED)                1st Q             1st Q
     Millions of dollars except per share
      amounts                                          2004              2003
     Net Earnings                                      $269              $134
     Less:
       Cumulative effect of accounting changes           --               (83)
       Special items                                     30               (12)
    Adjusted after-tax earnings                         239               229
    Add-backs to adjusted after-tax earnings:
          Depreciation, depletion and amortization      232               260
          Impairments                                     5                --
          Dry hole costs                                 25                71
          Exploration expenses (including amortization
           of undeveloped leasehold costs)               50                55
          Current income taxes                          141               138
          Deferred income taxes                          23                37
          Interest expense (a)                           41                38
             EBITDAX                                   $756              $828
     EBITDAX per share (diluted)                      $2.73             $3.05
     (a)  Net of capitalized interest of:                16                16

Updated: April 2004