press release

Unocal 4Q earnings up 79%; full-year 2003 results nearly double previous year

Download 4Q 2003 earnings news release (pdf format)

Download summary of 4Q 2003 earnings summary (pdf format)

El Segundo, Calif., Feb. 3, 2004 - Unocal Corporation (NYSE: UCL) today reported preliminary net earnings for the fourth quarter of $180 million, or 68 cents per share (diluted), 79 percent above the $96 million, or 38 cents per share (diluted) reported in the same period a year ago.

Unocal's preliminary adjusted after-tax earnings for the fourth quarter 2003 were $167 million, or 63 cents per share (diluted). This compares with the Thomson/First Call median of analyst estimates (published Feb. 2, 2004) of 62 cents per share. Unocal's adjusted after-tax earnings were $123 million, or 48 cents per share (diluted), in the fourth quarter 2002, and $190 million, or 72 cents per share (diluted), in the third 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)             4Q          3Q          4Q
     Millions of dollars except per share
      amounts                                    2003        2003        2002
     Earnings from continuing operations         $172        $152         $96
     Earnings from discontinued operations          8          --          --
     Net earnings                                 180         152          96
        Less:  Earnings from discontinued
         operations                                 8          --          --
        Less:  Special items                        5         (38)        (27)
     Adjusted after-tax earnings                 $167        $190        $123
     DILUTED EARNINGS PER SHARE DATA
      (UNAUDITED)
     Net earnings per share:
        Continuing operations                   $0.65       $0.58       $0.38
        Discontinued operations                  0.03          --          --
     Total net earnings per share               $0.68       $0.58       $0.38
     Adjusted after-tax earnings per share      $0.63       $0.72       $0.48
     REVENUES FROM CONTINUING OPERATIONS
      (UNAUDITED)                              $1,589      $1,541      $1,583


In the fourth quarter 2003, after-tax special items included a $29 million earnings benefit as the result of lower Canadian statutory tax rates and $17 million from insurance settlements. The positive special items were offset by a $28 million (after-tax) debt repurchase premium and an after-tax provision of $15 million for environmental and litigation matters related primarily to formerly operated sites or sites previously sold with retained liabilities. All of the special items are detailed in the Adjusted After-tax Earnings table.

Unocal's fourth quarter 2003 adjusted after-tax earnings (compared with 4Q 2002) reflected higher natural gas and liquids prices. These positive factors were partially offset by lower North America natural gas and liquids production and increased administrative and general expense due principally to higher pension-related costs.

Worldwide hydrocarbon liquids and natural gas production for the fourth quarter 2003 averaged 420,000 barrels of oil equivalent (BOE) per day, compared with 451,000 BOE per day in the same period a year ago. The production decline reflected lower North America results primarily because of asset sales in the Lower 48 operations. The lower North America production was partially offset by increases in international liquids and natural gas production.

Fourth-quarter 2003 worldwide price realizations (including hedging activities) for natural gas averaged $3.65 per thousand cubic feet (mcf), up from $3.10 during the prior year's fourth quarter. The company's worldwide liquids price realizations (including hedging activities) were $28.33 per barrel, up from $25.44 in 2002. Hedging activities in the fourth quarter increased worldwide liquids realizations by 19 cents per barrel and worldwide natural gas realizations by 14 cents per mcf.

Total revenues for the quarter were $1.59 billion, up from $1.58 billion recorded a year ago.

Unocal's EBITDAX for the fourth quarter 2003 was $661 million, or $2.41 per share (diluted). This compares with $607 million, or $2.38 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.

Full-year 2003 results

For the full-year 2003, Unocal reported preliminary unaudited net earnings of $643 million, or $2.46 per share (diluted). The results were nearly double the $331 million, or $1.34 per share (diluted) recorded for 2002. Unocal's preliminary adjusted after-tax earnings for the full-year 2003 were $777 million, or $2.95 per share (diluted). This compares with $426 million, or $1.72 per share (diluted), for the full-year 2002. The special items are detailed in the Adjusted After-tax Earnings table included with this news release.

     CONSOLIDATED RESULTS (UNAUDITED)
     Millions of dollars except per share                  For the Year
     amounts                                             Ended December 31,
                                                       2003              2002
     Earnings from continuing operations               $710              $330
     Earnings from discontinued operations               16                 1
     Cumulative effects of accounting
      changes                                           (83)               --
     Net earnings                                       643               331
        Less:  Earnings from discontinued
         operations                                      16                 1
        Less:  Cumulative effects of
         accounting changes                             (83)               --
        Less:  Special items                            (67)              (96)
     Adjusted after-tax earnings                       $777              $426
     DILUTED EARNINGS PER SHARE DATA
      (UNAUDITED)
     Net earnings per share:
        Continuing operations                         $2.70             $1.34
        Discontinued operations                        0.06                --
        Cumulative effects of accounting
         changes                                      (0.30)               --
     Total net earnings per share                     $2.46             $1.34
     Adjusted after-tax earnings per share            $2.95             $1.72
     REVENUES FROM CONTINUING OPERATIONS
      (UNAUDITED)                                    $6,539            $5,297


Net cash provided from operating activities increased to $1.95 billion in 2003, from $1.57 billion in 2002. Unocal's EBITDAX for the full-year 2003 was $2.92 billion, or $10.71 per share (diluted), compared with $2.30 billion, or $9.29 per share (diluted), for 2002. The company's total consolidated long-term debt (including current maturities) was $2.88 billion at Dec. 31, 2003. Cash and cash-equivalents were $404 million at Dec. 31, 2003.

"We had an outstanding year from a financial and operating standpoint," said Charles R. Williamson, Unocal chairman and chief executive officer. "We continued to reap the benefits of strong commodity prices and increased our overseas liquids and gas production levels. We expect further growth in international production under new or amended sales contracts that were negotiated during the year."

Unocal's operations highlights for 2003

  • Significant deepwater discoveries in the Gulf of Mexico (St. Malo, Puma) and Indonesia (Gehem).
  • Initiated production on the deepwater West Seno project in Indonesia.
  • Signed preliminary agreements in Thailand to extend the gas sales contracts and increase contract volumes; steps taken to double oil production by 2005.
  • Restructured Unocal's North America business; sold properties to reduce unit operating costs and improve overall margins.
  • Signed production-sharing contracts for exploration and production in the Xihu Trough in the East China Sea.
  • Signed a gas sales agreement and approved a development plan for the Moulavi Bazar field in Bangladesh.
  • Major progress on construction of the Azerbaijan International Operating Company (AIOC) Phase 1 project in the Caspian Sea and related export pipeline.
  • Successfully replaced all of our 2003 production and most of the reserves sold in the North America restructuring program. Finding, development and acquisition cost was among the lowest that Unocal has achieved in the last five years.
  • Reduced debt and other financings by about $500 million; achieved 39% debt-to-total capitalization ratio.

What to watch for from Unocal in 2004

  • Major new developments near completion, contributing to significant international growth by 2005 (AIOC, Bangladesh, Thailand oil).
  • Continued deepwater exploration success and appraisal of 2003 deepwater discoveries (St. Malo, Puma, Gehem); progress on commercialization of Perdido resources (Trident).
  • Launching Indonesia deepwater gas developments for the Bontang Liquefied Natural Gas (LNG) plant.
  • Meet $8.00 per BOE finding and development cost target for all of North America, including the reduced Gulf of Mexico shelf program.

First quarter 2004 outlook

For the first quarter 2004, Unocal is forecasting adjusted after-tax earnings of 70 to 80 cents per share (diluted). This forecast compares with the Thomson/First Call median of analyst estimates (published Feb. 2, 2004) of 73 cents per share for the quarter. The first quarter forecast assumes average NYMEX benchmark prices of $34.25 per barrel of crude oil and $6.00 per million British thermal units (mmBtu) for North America natural gas for the period.

Unocal's first quarter 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 first quarter of $40 to $50 million.

The company's current estimate for first 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 450,000 BOE per day.

The first-quarter adjusted after-tax earnings forecast excludes special items. Because of the inherent uncertainty related to special items, determining whether or when they will occur and quantifying their dollar impact, Unocal 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. PST (4 p.m. EST) over the Internet. To listen to the live webcast, go to the Investor Presentations section of the Unocal web site. Replays of the conference call, including questions and answers, will be available.

the fourth 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 project developments, exploratory drilling activity and dry hole costs, production rates, commodity prices, expected adjusted after-tax earnings and future finding and development 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    For the Twelve
                                               Months Ended     Months Ended
     Millions of dollars except per share       December 31,     December 31,
      amounts                                 2003     2002     2003     2002
     Revenues
     Sales and operating revenues            $1,578   $1,529   $6,395   $5,224
     Interest, dividends and miscellaneous
      income                                      7       14       25       31
     Gain on sales of assets                      4       40      119       42
           Total revenues                     1,589    1,583    6,539    5,297
     Costs and other deductions
     Crude oil, natural gas and product
      purchases                                 497      577    2,126    1,701
     Operating expense                          375      389    1,340    1,338
     Administrative and general expense          61       37      260      151
     Depreciation, depletion and
      amortization                              242      249      988      973
     Asset impairments                            7       20       93       47
     Dry hole costs                              33       26      128      107
     Exploration expense                         69       66      251      246
     Interest expense                            71       45      190      179
     Property and other operating taxes          20       19       81       60
     Distributions on convertible preferred
      securities of subsidiary trust              9        9       33       33
           Total costs and other deductions   1,384    1,437    5,490    4,835
     Earnings from equity investments            42       31      192      154

     Earnings from continuing operations
      before income taxes and minority
      interests                                247      177    1,241      616
     Income taxes                                74       77      522      280
     Minority interests                           1        4        9        6
     Earnings from continuing operations        172       96      710      330
     Earnings from discontinued operations        8       --       16        1
     Cumulative effects of accounting
      changes (a)                                --       --      (83)      --
           Net earnings                        $180      $96     $643     $331
     Basic earnings per share of common
      stock (b)
           Continuing operations              $0.66    $0.38    $2.75    $1.34
           Net earnings                       $0.69    $0.38    $2.49    $1.34
     Diluted earnings per share of common
      stock (c)
           Continuing operations              $0.65    $0.38    $2.70    $1.34
           Net earnings                       $0.68    $0.38    $2.46    $1.34
     Cash dividends declared per share of
      common stock                            $0.20    $0.20    $0.80    $0.80
     (a)  Net of tax (benefit)                  $--      $--     $(48)     $--
     (b)  Basic weighted average shares
          outstanding  (in thousands)       259,521  253,526  258,563  246,759
     (c)  Diluted weighted average shares
          outstanding (in thousands)        274,025  254,775  272,722  247,679



     CONDENSED CONSOLIDATED BALANCE SHEET
     (UNAUDITED)                                           At December  31,
     Millions of dollars                               2003              2002
     Assets
     Cash and cash equivalents                         $404              $168
     Other current assets - net                       1,587             1,207
     Investments and long-term receivables
      - net                                             893             1,044
     Properties - net                                 8,324             7,879
     Goodwill                                           131               122
     Other assets                                       459               426
        Total assets                                $11,798           $10,846
     Liabilities and Stockholders' Equity
     Current liabilities (a)                         $2,085            $1,632
     Long-term debt and capital leases                2,635             3,002
     Deferred income taxes                              704               593
     Accrued abandonment, restoration and
      environmental liabilities                         844               622
     Other deferred credits and
      liabilities                                       960               902
     Minority interests                                  39               275
     Convertible preferred securities of a
      subsidiary trust                                  522               522
     Stockholders' equity                             4,009             3,298
        Total liabilities and
         stockholders' equity                       $11,798           $10,846
     (a)  Includes current portion of LTD
          of:                                           248                 6


     CONSOLIDATED CASH FLOWS (UNAUDITED)               For the Twelve Months
                                                         Ended December 31,
     Millions of dollars                               2003              2002
     Cash Flows from Operating Activities
     Net earnings                                      $643              $331
     Adjustments to reconcile net earnings
      to net cash provided by operating
      activities
           Depreciation, depletion and
            amortization                                988               973
           Asset impairments                             93                47
           Dry hole costs                               128               107
           Amortization of exploratory
            leasehold costs                             108                98
           Deferred income taxes                         56                22
           Gain on sales of assets                     (119)              (42)
           Gain on disposal of
            discontinued operations                     (25)               (2)
           Pension expense net of
            contributions                                58                22
           Restructuring provisions net of
            payments                                     18                 2
           Cumulative effect of accounting
            changes                                      83                --
           Other                                         17               (73)
     Working capital and other changes
      related to operations                             (99)               86
                 Net cash provided by
                  operating activities                1,949             1,571
     Cash Flows from Investing Activities
        Capital expenditures (includes dry
         hole costs)                                 (1,718)           (1,670)
        Proceeds from sales of assets                   642               163
        Proceeds from sale of discontinued
         operations                                      11                 3
                 Net cash used in
                  investing activities               (1,065)           (1,504)
     Cash Flows from Financing Activities
        Long-term borrowings                            205               585
        Reduction of long-term debt and
         capital lease obligations                     (452)             (495)
        Minority interests                             (257)               (8)
        Proceeds from issuance of common
         stock                                           58                21
        Dividends paid on common stock                 (207)             (196)
        Loans to key employees                           11                 6
        Other                                            (6)               (2)
              Net cash provided by (used
               in) financing activities                (648)              (89)
     Net increase (decrease) in cash and
      cash equivalents                                  236               (22)
     Cash and cash equivalents at
      beginning of year                                 168               190
     Cash and cash equivalents at end of
      period                                           $404              $168



     NET EARNINGS AND ADJUSTED AFTER-TAX
     EARNINGS                                   4th Q 2003         3rd Q 2003
     BY BUSINESS SEGMENT                            Adjusted         Adjusted
     (UNAUDITED)                                    After-Tax        After-Tax
                                              Net    Earnings    Net  Earnings
     Millions of dollars                   Earnings     (a)  Earnings     (a)
     Exploration & Production
        North America
               U.S. Lower 48 (b)               $61      $58      $77      $85
               Alaska                           16       16       12       12
               Canada                           32        7       15       15
                    Total North America        109       81      104      112
        International
               Far East                        114      114      115      115
               Other                            24       24       21       21
                    Total International        138      138      136      136
     Total Exploration & Production            247      219      240      248
     Trade                                      --       --        3        3
     Midstream                                  21       17       16       17
     Geothermal and Power Operations            12       12       19       19
     Corporate and Other
               Administrative and General      (26)     (26)     (21)     (21)
               Interest Expense - Net          (54)     (26)     (32)     (32)
               Environmental and
                Litigation                     (24)      (8)     (33)     (15)
               Other (a)                        (4)     (21)     (40)     (29)
     After-tax earnings from continuing
      operations                               172      167      152      190
     After-tax earnings from discontinued
      operations                                 8       --       --       --
     After-tax earnings                       $180     $167     $152     $190
     (a)  For a reconciliation to net
          earnings, see the Adjusted After-Tax
          Earnings table.
     (b)  Includes earnings (loss) from:
               Onshore / Shelf                  74       71       85       93
               Deep water                      (13)     (13)      (8)      (8)



     NET EARNINGS AND ADJUSTED AFTER-TAX
     EARNINGS                                 4th Q 2003          4th Q 2002
     BY BUSINESS SEGMENT                           Adjusted           Adjusted
     (UNAUDITED)                                  After-Tax          After-Tax
                                              Net   Earnings    Net   Earnings
     Millions of dollars                    Earnings     (a)  Earnings     (a)
     Exploration & Production
        North America
               U.S. Lower 48 (b)               $61      $58      $(4)     $41
               Alaska                           16       16        1        1
               Canada                           32        7        5        6
                    Total North America        109       81        2       48
        International
               Far East                        114      114      111      111
               Other                            24       24       29       29
                    Total International        138      138      140      140
     Total Exploration & Production            247      219      142      188
     Trade                                      --       --        3        3
     Midstream                                  21       17       45       15
     Geothermal and Power Operations            12       12        5        5
     Corporate and Other
               Administrative and General      (26)     (26)     (18)     (18)
               Interest Expense - Net          (54)     (26)     (35)     (35)
               Environmental and
                Litigation                     (24)      (8)     (26)      (5)
               Other (a)                        (4)     (21)     (20)     (30)
     After-tax earnings from continuing
      operations                               172      167       96      123
     After-tax earnings from discontinued
      operations                                 8       --       --       --
     After-tax earnings                       $180     $167      $96     $123
     (a)  For a reconciliation to net
          earnings, see the Adjusted After-Tax
          Earnings table.
     (b)  Includes earnings (loss) from:
               Onshore / Shelf                  74       71       12       57
               Deep water                      (13)     (13)     (16)     (16)



     NET EARNINGS AND ADJUSTED AFTER-TAX
     EARNINGS                                 For the Years Ended December 31,
     BY BUSINESS SEGMENT                       2003     2003     2002     2002
     (UNAUDITED)                                    Adjusted          Adjusted
                                                   After-Tax         After-Tax
     Millions of dollars                       Net  Earnings    Net   Earnings
                                            Earnings     (a) Earnings      (a)
     Exploration & Production
        North America
               U.S. Lower 48 (b)               $338     $324      $33     $87
               Alaska                            57       57       --      --
               Canada                            79       50       --       6
                    Total North America         474      431       33      93
        International
               Far East                         466      466      434     434
               Other                             95       95       69      69
                    Total International         561      561      503     503
     Total Exploration & Production           1,035      992      536     596
     Trade                                       (2)      (2)       4       4
     Midstream                                   73       70      104      74
     Geothermal and Power Operations             50       50       30      30
     Corporate and Other
               Administrative and General       (92)     (92)     (82)    (82)
               Interest Expense - Net          (145)    (117)    (128)   (128)
               Environmental and
                Litigation                     (102)     (28)     (76)    (11)
               Other (a)                       (107)     (96)     (58)    (57)
     After-tax earnings from continuing
      operations                                710      777      330     426
     After-tax earnings from discontinued
      operations                                 16       --        1      --
     Cumulative effects of accounting
      changes                                   (83)      --       --      --
     After-tax earnings                        $643     $777     $331    $426
     (a)  For a reconciliation to net
          earnings, see the Adjusted After-Tax
          Earnings table.
     (b)  Includes earnings (loss) from:
               Onshore / Shelf                  419      405       77     131
               Deep water                       (81)     (81)     (44)    (44)



                                             For the Three     For the Twelve
     OPERATING HIGHLIGHTS                     Months Ended      Months Ended
                                              December 31,      December 31,
                                              2003     2002     2003     2002
     North America Net Daily Production
       Liquids (thousand barrels)
          U.S. Lower 48 (a) (b)                 37       46       43       52
          Alaska                                21       23       21       24
          Canada                                17       18       17       18
               Total liquids                    75       87       81       94
       Natural gas - dry basis (million
        cubic feet)
          U.S. Lower 48 (a) (b)                516      659      616      719
          Alaska                                50       68       57       76
          Canada                                89       91       90       91
               Total natural gas               655      818      763      886
     North America Average Prices
      (excluding hedging activities) (c)
       Liquids (per barrel)
          U. S. Lower 48                    $27.73   $25.20   $28.07   $22.85
          Alaska                            $30.73   $26.96   $29.85   $24.21
          Canada                            $22.94   $21.84   $24.76   $20.70
               Average                      $27.52   $24.94   $27.84   $22.79
       Natural gas (per mcf)
          U. S. Lower 48                     $4.47    $3.77    $5.18    $3.01
          Alaska                             $1.46    $1.20    $1.31    $1.42
          Canada                             $4.56    $3.50    $5.07    $2.67
               Average                       $4.30    $3.51    $4.88    $2.83
     North America Average Prices
      (including hedging activities) (c)
       Liquids (per barrel)
          U. S. Lower 48                    $28.50   $25.19   $27.72   $22.87
          Alaska                            $30.73   $26.96   $29.85   $24.21
          Canada                            $22.94   $21.84   $24.76   $20.70
               Average                      $27.90   $24.94   $27.66   $22.81
       Natural gas (per mcf)
          U. S. Lower 48                     $4.91    $3.75    $5.07    $3.07
          Alaska                             $1.46    $1.20    $1.31    $1.42
          Canada                             $4.34    $3.31    $4.78    $2.66
               Average                       $4.61    $3.47    $4.76    $2.88
     (a)  Includes proportional interests
          in production of equity investees.
     (b)  Includes minority interests of :
                                   Liquids      --        3       --        7
                               Natural gas      --       41        5       82
                    Barrels oil equivalent      --       10        1       21
     (c)  Excludes gains/losses on derivative positions not accounted for as
          hedges and ineffective portions of hedges.



     OPERATING HIGHLIGHTS (CONTINUED)     For the Three Months   For the Year
                                                  Ended             Ended
                                               December 31,      December 31,
                                              2003     2002     2003     2002
     International Net Daily Production (d)
       Liquids  (thousand barrels)
          Far East                              63       53       59       53
          Other (a)                             19       21       20       20
               Total liquids                    82       74       79       73
       Natural gas - dry basis (million
        cubic feet)
          Far East                             844      823      877      847
          Other (a)                             78       96       88       93
               Total natural gas               922      919      965      940
     International Average Prices (e)
       Liquids (per barrel)
          Far East                          $28.40   $25.36   $27.30   $22.88
          Other                             $29.68   $27.55   $28.29   $25.47
               Average                      $28.73   $26.01   $27.54   $23.57
       Natural gas (per mcf)
          Far East                           $2.96    $2.77    $2.83    $2.75
          Other                              $3.00    $2.83    $2.90    $2.72
               Average                       $2.96    $2.78    $2.84    $2.75

     Worldwide Net Daily Production (a)
      (b) (d)
       Liquids  (thousand barrels)             157      161      160      167
      Natural gas - dry basis (million
        cubic feet)                          1,577    1,737    1,728    1,826
       Barrels oil equivalent (thousands)      420      451      448      471
     Worldwide Average Prices (excluding
      hedging activities) (c)
       Liquids (per barrel)                 $28.14   $25.44   $27.70   $23.13
       Natural gas (per mcf)                 $3.51    $3.12    $3.73    $2.79
     Worldwide Average Prices (including
      hedging activities) (c) (e)
       Liquids (per barrel)                 $28.33   $25.44   $27.60   $23.14
       Natural gas (per mcf)                 $3.65    $3.10    $3.66    $2.81
     (a)  Includes proportional interests
          in production of equity investees.
     (b)  Includes minority interests of :
                                   Liquids      --        3       --        7
                               Natural gas      --       41        5       82
                    Barrels oil equivalent      --       10        1       21
     (c)  Excludes gains/losses on derivative positions not accounted for as
          hedges and ineffective portions of hedges.
     (d)  International production is  presented utilizing the economic
          interest method.
     (e)  International did not have any hedging activities.



     ADJUSTED AFTER-TAX EARNINGS
     (UNAUDITED)                              For the Three    For the Twelve
     Millions of dollars except per share     Months Ended     Months Ended
     amounts                                   December 31,      December 31,
                                              2003     2002     2003     2002
     Net earnings                             $180      $96     $643     $331
     Less:
        Earnings from discontinued
         operations                              8       --       16        1
        Cumulative effects of accounting
         changes                                --       --      (83)      --
     Earnings from continuing operations       172       96      710      330
     Less: Special items
        E&P - North America - U.S. Lower
         48
             Asset sales                         3      (20)      46      (18)
             Held for sale impairments          --       (8)     (31)      (8)
             Environmental and litigation
              provisions                        --       --       (1)       1
             Minority interests
              acquisition                       --       (8)      --       (8)
             Restructuring                      --       --       --      (12)
             Uninsured losses                   --       (9)      --       (9)
        E&P - North America - Canada
             Statutory tax rate change          25       --       25       --
             Trading derivatives -- non-
              hedging                           --       (1)       4       (6)
        Midstream
             Asset sales                        --       30       --       30
             Canadian statutory tax rate
              change                             4       --        4       --
             Held for sale impairments          --       --       (1)      --
        Corporate & Other
             Asset sales                        --       14       --       14
             Environmental and litigation
              provisions                       (15)     (25)     (78)     (82)
             Debt repurchase premium           (28)      --      (28)      --
             Insurance settlements              17       --       17        2
             Restructuring                      (1)      --      (24)      --
     Total special items                         5      (27)     (67)     (96)
          Adjusted after-tax earnings         $167     $123     $777     $426
          Adjusted after-tax diluted
           earnings per share                $0.63    $0.48    $2.95    $1.72


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.

                                           For the Three    For the Twelve
     EBITDAX (UNAUDITED)                       Months           Months
                                               Ended            Ended
     Millions of dollars                     December 31,      December 31,
                                             2003    2002     2003     2002
     Net Earnings                            $180     $96     $643     $331
     Less:
        Earnings from discontinued
         operations                             8      --       16        1
        Cumulative effects of accounting
         changes                               --      --      (83)      --
        Special items                           5     (27)     (67)     (96)
     Adjusted after-tax earnings              167     123      777      426
     Add-backs to adjusted after-tax
      earnings:
           Depreciation, depletion and
            amortization                      242     249      988      973
           Asset impairments                    7       7       41       34
           Dry hole costs                      33      26      128      107
           Exploration expenses (including
            amortization of
            undeveloped leasehold costs)       69      66      251      246
           Current income taxes               113      81      415      260
           Deferred income taxes               (8)     10      163       75
           Interest expense (a)                38      45      157      179
              EBITDAX                        $661    $607   $2,920   $2,300
     EBITDAX per share (diluted)            $2.41   $2.38   $10.71    $9.29
     (a)  Net of capitalized interest of:      14      13       60       46

Updated: February 2004