press release

Unocal expands energy trading activities; chooses selective growth vs. mega-merger mania'

Houston, Sept. 15, 1997 -- Unocal Corporation today announced steps to expand its highly successful in-house energy trading unit by offering trading services to additional third-party producers and traders and opening new offices in Singapore and Calgary.

The trading unit, known as Unocal Global Trade, has been established to consolidate Unocal's worldwide commodity trading activities.

"Unocal Global Trade is an integral part of our drive to participate profitably in each segment of the energy value chain," said Roger C. Beach, Unocal chairman and chief executive officer. "It plays a key role in the short and long-term supply and pricing arrangements that will be instrumental in making Unocal a top-flight independent energy producer and world-class project development company."

In 1996, Unocal's trading group achieved average net trading margins on domestic natural gas of 4-cents per million Btus. This is approximately double the margins of many other major domestic marketers. In addition, the trading unit has substantially increased margins for domestic and international crude oil and liquids trading over the past two years.

"This trading success contributes significantly to Unocal's bottom line," Beach said. "Our trading operations provided approximately $26 million of value to the company last year, about the same as wells producing about 4 million barrels of oil equivalent. We expect that the 1997 impact could be even higher."

William T. Wilson, president of Unocal Global Trade, added that the trading unit is expanding the scope of trading operations by providing energy trading with acceptable risk to third-parties who seek a higher return. "We believe our ability to deliver higher margins will translate into stronger producer netbacks," he said. "Too many producers are leaving money on the table." He added that Unocal Global Trade would open a new trading office in Singapore to provide expanded services to producers and traders in Asia. Unocal opened a new trading office in Calgary last month. Unocal Global Trade is headquartered in Sugar Land, Texas.

Wilson indicated that, in recent months, Unocal Global Trade has examined numerous proposed and potential combinations with other trading and marketing entities. "In energy trading, bigger is not necessarily better," Wilson said. "The mega-mergers created in some marketing combinations may well turn out to be muscle-bound, slow, inefficient and unprofitable."

Wilson stressed that Unocal Global Trade will continue its focus on achieving the best possible margins, compared with other trading groups that stress amassing large trading volumes, "We have grown significantly ourselves, but not at the expense of our current high margins," he said. "Comparisons based on trading volume are misleading if not accompanied by profitability comparisons. Volume is always easier to achieve than true profitability."

Unocal Global Trade is also looking at opportunities presented by the deregulation of electricity in North America. "Our entry into this market is just a question of timing," Wilson said. "We are currently seeking opportunities that would allow us to lend our natural gas and crude oil marketing skills to unique alliances in power trading."

Another core area for Unocal Global Trade will be crude oil trading and fuel management in the rapidly-expanding Asian markets. This will include developing supply strategies to support new power plants in Asia and other rapidly-growing parts of the world. "Unocal's long presence in Asia provides us with strong name recognition and an excellent reputation on which to build," Wilson said.

In 1996, Unocal's trading operation marketed about 1.3 billion cubic feet per day of natural gas in North America and 200,000 b/d of crude oil and gas liquids worldwide.

Unocal is a leading independent energy resource and project development company, with reserves of more than 9.8 trillion cubic feet of natural gas equivalent (1.6 billion barrels of oil equivalent) and major oil and gas production activities in Asia and the U.S. Gulf of Mexico.

Updated: September 1997