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