press release

Unocal 4Q 2002 adjusted earnings rise 112 percent

Download 4Q earnings news release in pdf format

El Segundo, Calif., Jan. 29, 2003 - Unocal Corporation (NYSE: UCL) today reported preliminary net earnings in the fourth quarter of $96 million, or 38 cents per share (diluted). This compares with a net loss of $29 million, or 12 cents per share (diluted), in the same period a year ago.

Unocal's preliminary adjusted after-tax earnings (excluding special items) from continuing operations were $123 million, or 48 cents per share (diluted). This compares with the Thompson/First Call consensus (published Jan. 27, 2003) of 45 cents per share. In the fourth quarter 2001, Unocal's adjusted after-tax earnings from continuing operations were $58 million, or 24 cents per share (diluted).

CONSOLIDATED RESULTS (UNAUDITED) 4Q 2002 3Q 2002 4Q 2001
Millions of dollars except per share amounts

Earnings/(loss) from continuing operations $ 96 $ 99 $ (30)
Earnings from discontinued operations - - 1

Net earnings/(loss) $ 96 $ 99 $ (29)
Less:
Special items included in net earnings (27) (27) (87)

Adjusted after-tax earnings from continuing operations $ 123 $ 126 $ 58
DILUTED EARNINGS PER SHARE DATA (UNAUDITED)
Net earnings/(loss) per share:
Continuing operations $ 0.38 $ 0.41 $ (0.13)
Discontinued operations - - 0.01

Total net earnings/(loss) per share $ 0.38 $ 0.41 $ (0.12)


Adjusted after-tax earnings per share from continuing operations $ 0.48 $ 0.52 $ 0.24

REVENUES FROM CONTINUING OPERATIONS (UNAUDITED) $ 1,572 $ 1,285 $ 1,263

Fourth quarter special items

In the fourth quarter 2002, special items (after-tax) included a net gain of $16 million from asset sales. This was offset by $26 million in provisions for environmental matters (related principally to company facilities sold with retained liabilities, formerly operated sites and active company facilities), $8 million in costs related to the acquisition of the outstanding minority interest in Pure Resources, Inc., common stock and $9 million for uninsured losses due to hurricane damage in the Gulf of Mexico.

Fourth quarter earnings factors

Unocal's fourth quarter 2002 adjusted earnings (compared with 4Q 2001) reflected improved results from the company's North America and International E&P operations, which benefited from higher commodity prices, lower exploration expenses and higher international gas production, along with improved margins from oil and gas marketing activities. These gains were offset partially by lower North America production volumes and higher pension-related costs.

Worldwide, Unocal's consolidated net daily production in the fourth quarter 2002 averaged 451,000 barrels-of-oil equivalent (BOE) per day, compared with the 497,000 BOE per day a year ago.

North America production averaged 223,000 BOE per day in the fourth quarter, down from 279,000 BOE per day a year ago. The lower production was due principally to the decline in production from the Muni field (Gulf of Mexico), which had reached peak production rates in the third quarter 2001. Other factors were the natural declines in existing fields and hurricane-related production curtailments in the Gulf of Mexico.

Unocal's worldwide average liquids price was $25.28 per barrel, up from $18.77 in the fourth quarter 2001. The company's average worldwide realized price for natural gas was $3.02 per thousand cubic feet (mcf), compared with $2.42 per mcf a year ago.

Fourth-quarter revenues from continuing operations were $1.57 billion, up from $1.26 billion in the fourth quarter 2001.

Full-year results

For the full-year 2002, Unocal's preliminary unaudited net earnings were $331 million, or $1.34 per share (diluted). This compares with $615 million, or $2.50 per share (diluted), for the same period in 2001. Excluding special items, discontinued operations and the cumulative effect of an accounting change, Unocal's adjusted after-tax earnings from continuing operations were $426 million, or $1.72 per share (diluted). This compares with $753 million, or $3.04 per share (diluted), for 2001.

Full-year 2002 revenues from continuing operations were $5.25 billion, compared with $6.75 billion in 2001.

CONSOLIDATED RESULTS (UNAUDITED) For the Twelve Months Ended December 31,
Millions of dollars except per share amounts 2002 2001

Earnings from continuing operations $ 330 $ 599
Earnings from discontinued operations 1 17
Cumulative effect of accounting change - (1)

Net earnings $ 331 $ 615
Less:
Special items included in net earnings (95) (138)

Adjusted after-tax earnings from continuing operations $ 426 $ 753

DILUTED EARNINGS PER SHARE DATA (UNAUDITED)
Net earnings per share:
Continuing operations $ 1.34 $ 2.43
Discontinued operations - 0.07

Total net earnings per share $ 1.34 $ 2.50


Adjusted after-tax earnings per share from continuing operations $ 1.72 $ 3.04

REVENUES FROM CONTINUING OPERATIONS (UNAUDITED) $ 5,251 $ 6,752

Full-year 2002 special items

For the full year 2002, special items (after-tax) included a net gain of $18 million related to asset sales and a $2 million benefit resulting from a recovery from insurance carriers related to prior-year environmental remediation costs arising from an incident at one of the company's formerly owned refineries. These positive factors were more than offset by $80 million in provisions for litigation and environmental matters, a $12 million charge for restructuring the company's Gulf Region USA business unit, $9 million for uninsured losses due to hurricane damage in the Gulf of Mexico, $8 million in costs related to the acquisition of the minority interests in Pure Resources, Inc., and $6 million in net losses related to mark-to-market accruals for non-hedge commodity derivatives.

The special items that were included in the company's results for 2002 and 2001 are detailed in the Quarterly Fact Book and prior period news releases, which are posted on the Unocal web site, www.unocal.com.

Financial condition

Cash flow from operating activities for the full-year 2002 was $1.57 billion, down from $2.13 billion for 2001. This decrease primarily reflected lower North America natural gas production volumes and prices.

Unocal's adjusted discretionary cash flow (as defined in the attached table) for 2002 was $1.83 billion, or $7.37 per share (diluted). This compares with $2.29 billion, or $8.92 per share (diluted) for 2001. Adjusted discretionary cash flow for the fourth quarter was $481 million, or $1.89 per share (diluted), compared with $439 million, or $1.79 per share (diluted), for the comparable period in 2001. Discretionary cash flow for the prior quarters of both the current year and 2001 can be found in the company's Quarterly Fact Book.

Capital spending was $1.67 billion for the full-year 2002, compared with $1.73 billion in 2001, which excluded $646 million for major acquisitions.

The company's total consolidated long-term debt (including current maturities) was $3.0 billion at Dec. 31, 2002. This compares with $2.91 billion at year-end 2001.

Stockholders' equity was $3.3 billion at year-end 2002, compared with $3.12 billion at Dec. 31, 2001. The net increase of $174 million includes a $391 million benefit that reflected the value of the 13.2 million shares of Unocal common stock issued to acquire the outstanding common stock of Pure Resources, Inc. that the company did not already own.

This benefit was offset largely by an after-tax charge of $334 million to the other comprehensive income component of equity to recognize the minimum pension liability for the company's qualified retirement plan. This reflected the excess of the accumulated benefit obligation for vested current and former employees over the fair value of plan assets at Dec. 31, 2002. The company was not required to make any cash contribution to the plan in 2002.

1Q 2003 earnings and production outlook

Unocal is forecasting adjusted earnings (net earnings excluding special items) of 60 to 70 cents per share (diluted) in the first quarter 2003. This forecast compares with the Thompson/First Call consensus (published Jan. 27, 2003) of 66 cents per share for the quarter. The first quarter earnings forecast assumes average NYMEX benchmark prices of $33.00 per barrel of crude oil and $5.25 per million British thermal units (mmBtu) for North America natural gas for the period.

Unocal's first quarter 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. The forecast also assumes pretax dry hole costs in the first quarter of $50 to $60 million.

The company's current estimate for first quarter 2003 production is between 455,000 and 465,000 BOE per day.

Full-year 2003 outlook

Unocal is forecasting full-year 2003 adjusted earnings (net earnings excluding special items) for the year of $2.45 to $2.75 per share (diluted). This forecast compares with the Thompson/First Call consensus (published Jan. 27, 2003) of $1.92 per share for the year.

The full-year 2003 earnings forecast assumes average NYMEX benchmark prices of $30.00 per barrel of crude oil and $5.00 per mmBtu for North America natural gas.

Unocal's full-year 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. The forecast also assumes pretax dry hole costs of $115 to $145 million and that pretax pension-related expenses will increase over 2002 by approximately $50 million.

Unocal expects full-year 2003 production to be at the lower end of the previously disclosed range of 480,000 to 495,000 BOE per day. The expected increase over the 2002 level reflects the start of new oil production from the West Seno field in Indonesia in the second quarter. The company's total actual production for the year could be impacted by cost recovery volume reductions under Unocal's various foreign production-sharing contracts due to higher oil prices, changes in demand for gas in Thailand, production and exploration performance in the Gulf of Mexico, and possible sales of marginal production in the Gulf of Mexico region.

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. PST (4 p.m. EST) over the Internet. To listen to the live webcast, go to the Investor Information 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 fourth quarter and full-year 2002 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 earnings, production rates, commodity prices, capital spending, dry hole costs 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 amended 2001 Annual Report on Form 10-K/A 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 amended 2001 Annual Report on Form 10-K/A 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.

CONSOLIDATED EARNINGS (UNAUDITED) For the Three Months Ended December 31, For the Twelve Months Ended December 31,
Millions of dollars except per share amounts 2002 2001 2002 2001

Revenues
Sales and operating revenues $ 1,519 $ 1,201 $ 5,179 $ 6,664
Interest, dividends and miscellaneous income 13 37 30 64
Gain on sales of assets 40 25 42 24

Total revenues 1,572 1,263 5,251 6,752
Costs and other deductions
Crude oil, natural gas and product purchases 577 351 1,701 2,492
Operating expense 378 365 1,292 1,376
Administrative and general expense 37 26 151 122
Depreciation, depletion and amortization 249 253 973 967
Impairments 20 118 47 118
Dry hole costs 26 35 107 175
Exploration expense 66 80 246 252
Interest expense 45 47 179 192
Property and other operating taxes 19 17 60 77
Distributions on convertible preferred securities of subsidiary trust 9 9 33 33

Total costs and other deductions 1,426 1,301 4,789 5,804
Earnings from equity investments 31 16 154 144

Earnings from continuing operations before income taxes and minority interests 177 (22) 616 1,092

Income taxes 77 5 280 452
Minority interests 4 3 6 41

Earnings from continuing operations 96 (30) 330 599
Discontinued operations
Refining, marketing and transportation Gain on disposal (net of tax)
- 1 1 17

Earnings from discontinued operations - 1 1 17
Cumulative effect of accounting change - - - (1)

Net earnings / (loss) $ 96 $ (29) $ 331 $ 615


Basic earnings / (loss) per share of common stock (a)
Continuing operations $ 0.38 $ (0.13) $ 1.34 $ 2.45
Net earnings $ 0.38 $ (0.12) $ 1.34 $ 2.52
Diluted earnings / (loss) per share of common stock (b)
Continuing operations $ 0.38 $ (0.13) $ 1.34 $ 2.43
Net earnings $ 0.38 $ (0.12) $ 1.34 $ 2.50
Cash dividends declared per share of common stock $ 0.20 $ 0.20 $ 0.80 $ 0.80

(a) Basic weighted average shares outstanding (in thousands) 253,526 243,994 246,759 243,568
(b) Diluted weighted average shares outstanding (in thousands) 254,775 244,771 247,679 256,774

CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) At December 31,
Millions of dollars 2002 2001

Assets
Cash and cash equivalents $ 168 $ 190
Other current assets - net 1,217 1,105
Investments and long-term receivables - net 1,044 1,405
Properties - net 7,879 7,514
Other assets 472 211

Total assets $ 10,780 $ 10,425


Liabilities and Stockholders' Equity
Current liabilities (a) $ 1,661 $ 1,422
Long-term debt and capital leases 2,992 2,897
Deferred income taxes 593 627
Other deferred credits and liabilities 1,439 1,314
Subsidiary stock subject to repurchase - 70
Minority interests 275 449
Convertible preferred securities of a subsidiary trust 522 522
Stockholders' equity 3,298 3,124

Total liabilities and stockholders' equity $ 10,780 $ 10,425
(a) Includes current portion of long-term debt of: 5 9

CONDENSED CONSOLIDATED CASH FLOWS (UNAUDITED) Years Ended December 31,
Millionsof dollars 2002 2001

Cash Flows from Operating Activities
Net earnings $ 331 $ 615
Adjustments to reconcile net earnings tonet cash provided by operating activities
Depreciation, depletion and amortization 973 967
Impairments 47 118
Dry hole costs 107 175
Amortization of exploratory leasehold costs 98 95
Deferred income taxes 22 81
(Gain) loss on sales of assets (pre-tax) (42) (24)
(Gain) on disposal of discontinued operations (pre-tax) (2) (27)
Earnings applicable to minority interests 6 41
Other (74) 31
Working capital and other changes related to operations 106 53

Net cash provided by operating activities 1,572 2,125

Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) (1,670) (1,727)
Major acquisitions - (646)
Proceeds from sales of assets 162 81
Proceeds from sale of discontinued operations 3 25

Net cash used in investing activities (1,505) (2,267)

Cash Flows from Financing Activities
Long-term borrowings 585 519
Reduction of long-term debt and capital lease obligations (495) (225)
Minority interests (8) (17)
Repurchases of common stock - -
Proceeds from issuance of common stock 20 15
Dividends paid on common stock (196) (195)
Other 5 -

Net cash provided by (used in) financing activities (89) 97

Decrease in cash and cash equivalents (22) (45)

Cash and cash equivalents at beginning of year 190 235

Cash and cash equivalents at end of year $ 168 $ 190

The following table of adjusted discretionary cash flow is provided for analysts and others in the investment community as a supplement to conventional financial data prepared in accordance with generally accepted accounting principles because of its wide acceptance as a measure of a company's ability to internally fund exploration and development activities and to service or incur debt. Adjusted discretionary cash flow, which excludes special items, exploration expenses, and capitalized interest, assumes certain income taxes related to special or nonrecurring items are deferred, and does not give effect to working capital changes, investing activities, including capital projects, or financing activities, including those for debt reduction and regular dividends. Adjusted discretionary cash flow should be considered in conjunction with the condensed consolidated cash flows statement as presented in this news release.


ADJUSTED DISCRETIONARY CASH FLOW (UNAUDITED) 4th Quarter 2002 3rd Quarter 2002 Twelve Months Ended December 31 2002
Millions except per share amounts
Adjusted after-tax earnings $ 123 $ 126 $ 426
Adjustments to earnings, excluding special items:
Depreciation, depletion and amortization 249 245 973
Impairments 20 6 47
Dry hole costs 26 40 107
Deferred income taxes 10 58 75
Exploration expenses (including amortization of exploratory leasehold costs) 66 60 246
Capitalized interest (13) (14) (46)
Total adjusted discretionary cash flow $ 481 $ 521 $ 1,828
Diluted weighted average shares 255 245 248
Adjusted discretionary cash flow per share (diluted) 1.89 2.13 7.37

The following table summarizes by segment both the net earnings and adjusted earnings (excluding special items) for the fourth quarter of 2002 and 2001. Net earnings, special items, and adjusted earnings for other periods are detailed in the Quarterly Fact Book and prior news releases that are posted on the Unocal web site, www.unocal.com.


NET EARNINGS AND ADJUSTED EARNINGS BY BUSINESS SEGMENT (UNAUDITED) 4th Q 2002 4th Q 2001
Net Earnings Adjusted Earnings Net Earnings Adjusted Earnings
Millions of dollars

Exploration & Production
North America
Lower 48 (a) (b) $ (4) $ 41 $ (59) $ 10
Alaska 1 1 6 6
Canada 5 6 (7) (12)
International
Far East 111 111 88 88
Other 29 29 (2) (2)
Trade 3 3 (4) (4)
Midstream 45 15 14 14
Geothermal and Power Operations 5 5 6 6
Corporate and Other
Administrative and General (18) (18) (17) (17)
Interest Expense - Net (a) (35) (35) 35) (35)
Environmental and Litigation (26) (5) (26) (4)
Other (a) (20) (30) 6 8

After-tax earnings/(loss) from continuing operations 96 123 (30) 58
After-tax earnings from discontinued operations - - 1 -

After-tax earnings/(loss) $ 96 $ 123 $ (29) $ 58


(a) Includes amounts attributable to minority interests of:
Lower 48 (6) (6) (5) (5)
Corporate and Other 2 2 2 2
(b) Includes earnings (loss) from:
Onshore / Shelf 12 57 (50) 19
Deep water (16) (16) (9) (9)


OPERATING HIGHLIGHTS 4Q 2002 3Q 2002 4Q 2001
North America Net Daily Production
Liquids (thousand barrels)
Lower 48 (a) (b) 46 52 59
Alaska 23 24 26
Canada 18 16 19
Total liquids 87 92 104
Natural gas - dry basis (million cubic feet)
Lower 48 (a) (b) 659 716 860
Alaska 68 61 101
Canada 91 90 89
Total natural gas 818 867 1,050
North America Average Prices (excluding hedging activities) (c) (d)
Liquids (per barrel)
Lower 48 $ 25.20 $ 24.86 $ 18.27
Alaska $ 26.96 $ 26.10 $ 22.36
Canada $ 19.58 $ 22.70 $ 13.49
Average $ 24.46 $ 24.79 $ 18.48
Natural gas (per mcf)
Lower 48 $ 3.77 $ 2.95 $ 2.28
Alaska $1.20 $1.20 $1.57
Canada $ 3.50 $ 2.08 $ 2.37
Average $ 3.51 $ 2.74 $ 2.22
North America Average Prices (including hedging activities) (c) (d)
Liquids (per barrel)
Lower 48 $ 25.19 $ 24.84 $ 18.75
Alaska $ 26.96 $ 26.10 $ 22.36
Canada $ 19.58 $ 22.70 $ 13.49
Average $ 24.45 $ 24.78 $ 18.74
Natural gas (per mcf)
Lower 48 $ 3.75 $ 2.97 $ 2.50
Alaska $ 1.20 $ 1.20 $ 1.57
Canada $ 3.31 $ 2.10 $ 2.37
Average $ 3.47 $ 2.75 $ 2.40
(a) Includes proportional shares of production of equity investees.
(b) Includes minority interest shares of :
Liquids 3 8 9
Natural gas 41 94 104
Barrels oil equivalent 10 24 26
(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) 4Q 2002 3Q 2002 4Q 2001
International Net Daily Production (e)
Liquids(thousand barrels)
Far East 53 52 57
Other (a) 21 20 19
Total liquids 74 72 76
Natural gas - dry basis (million cubic feet)
Far East 823 859 782
Other (a) 96 83 69
Total natural gas 919 942 851
International Average Prices (f)
Liquids (per barrel)
Far East $ 25.68 $ 23.93 $ 18.68
Other $ 27.55 $ 26.94 $ 19.11
Average $ 26.23 $ 24.80 $ 18.80
Natural gas (per mcf)
Far East $ 2.62 $ 2.68 $ 2.45
Other $ 2.83 $ 2.80 $ 2.43
Average $ 2.64 $ 2.69 $ 2.45
Worldwide Net Daily Production (a) (b) (e)
Liquids (thousand barrels) 161 164 180
Natural gas - dry basis (million cubic feet) 1,737 1,809 1,901
Barrels oil equivalent (thousands) 451 466 497
Worldwide Average Prices (excluding hedging activities) (c) (d)
Liquids (per barrel) $25.29 $ 24.80 $18.62
Natural gas (per mcf) $ 3.04 $ 2.71 $ 2.32
Worldwide Average Prices (including hedging activities) (c) (d)
Liquids (per barrel) $25.28 $ 24.79 $18.77
Natural gas (per mcf) $ 3.02 $ 2.72 $ 2.42
(a) Includes proportional shares of production of equity investees.
(b) Includes minority interest shares of :
Liquids 3 8 9
Natural gas 41 94 104
Barrels oil equivalent 10 24 26
(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.

Updated: January 2003