Unocal committed to long-term growth despite depressed commodity prices; sees lower third quarter earnings
El Segundo, Calif., Sept. 29, 1998 - Unocal Corporation said today that it continues to make progress on its long-term growth program despite depressed near-term prices for crude oil and natural gas.
"I am excited about our prospects as we move forward with our plans," said Roger C. Beach, Unocal chairman and chief executive officer. "Couple our technological expertise and low-cost structure with our targeted asset portfolio, and you have the elements needed for us to grow production by 10 to 11 percent per year over the next five years."
Unocal has focused its growth efforts on exploration and production projects in the Gulf of Mexico and Southeast Asia. In addition, Unocal is pursuing other high-value, market-to-resource project opportunities in key areas of growth.
"We see significant potential in our exploration program in the Gulf of Mexico and Kutei Basin in Indonesia, and the early results have been extremely encouraging," Beach said. Recently, Unocal discovered two potentially significant new deepwater fields in Indonesia, and additional prospects will be explored on the company's 2.1-million-acre deepwater holdings.
Unocal's Spirit Energy 76 unit has recorded 24 discoveries so far this year, double the exploration successes for all of 1997. "Unocal has also established itself as a major player in the deepwater Gulf of Mexico with interests in 196 blocks, including 62 apparent high bids in the August lease sale," Beach said.
Beach added that while oil and gas prices are likely to remain under pressure for some time, Unocal continues to generate significant discretionary cash flow to fund most of its growth program. "Unocal's low-cost drilling and operating capabilities will allow us to weather a sustained commodity price slump," Beach said. "Of course, our aggressive growth program will result in increased levels of exploration and dry hole expenses. These higher expenses combined with the current low commodity prices will serve to depress our current earnings."
Beach noted, for example, that Spirit Energy 76's estimated average gas price realization was $1.58 per thousand cubic feet (mcf) for September, and about $1.98 for the third quarter, 8 percent below the second quarter. At the same time, Spirit Energy's exploration expense in the third quarter was running about 70 percent above the second quarter level. In addition, the recent storms have had a significant impact on Unocal's production in the Gulf of Mexico.
Unocal said that the combined impact of low prices, storms and higher growth-related expenses, coupled with lower Diversified Business Group earnings and increased net interest expense, will result in third quarter adjusted earnings below 10 cents per share, the low end of the current range of analyst estimates. The adjusted earnings estimate excludes special items that may be recorded in the quarter.
"We are confident that we will have positive earnings for the quarter, but extreme price volatility and timing of dry holes make it difficult to project an exact number," Beach said. "While we cannot control prices, we continue to aggressively lower costs to help mitigate the impact on earnings. We are already a lean, low-cost operator and explorer, but there are always opportunities for further reductions."
The company's third quarter 1998 earnings forecast could also be affected by significant dry hole expenses that might be recorded before the closing for the quarter.
Unocal had recorded adjusted earnings of 26 cents per share in the second quarter 1998. The latest First Call Corporate Monitor analyst estimates for Unocal's 1998 third quarter ranged from 10 to 25 cents per share, with a consensus of 20 cents.
The company expects its 1998 capital spending to total about $1.6 billion, up from an earlier forecast of $1.5 billion. The higher capital spending reflects Unocal's recent successful bidding for offshore leases in the Gulf of Mexico and development of international growth projects. The increase in capital spending is expected to be funded from a combination of asset sales proceeds and increased debt.
Unocal expects to report its third quarter 1998 results on Oct. 27.
This news release contains forward-looking statements about future earnings, expenses, capital expenditures and production, as well as future exploration and development activities. These statements are based on assumptions concerning commodity prices, regulatory actions, economic and market conditions, operational concerns and other considerations. Actual results could differ materially.
Updated: September 1998