press release

Unocal outlines 2000 financial outlook and strategy for Wall Street

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New York City, N.Y., Feb. 9, 2000 -- Unocal Corporation today outlined the company's financial outlook and strategic approaches for 2000 at its annual global company review for Wall Street analysts and portfolio managers.

The company said it expects adjusted per share earnings of $1.40 to $1.50 for 2000 with a return on capital employed (ROCE) in the 8 to 9 percent range and discretionary cash flow (DCF) of $6.30 to $6.70 per share.

The forecasts for earnings, ROCE and DCF assume an average West Texas Intermediate price of $21.50 per barrel of oil and a Henry Hub natural gas price of $2.55 per thousand cubic feet. This forecasts also exclude projected earnings of $12 million to $24 million for the Unocal's agricultural products segment, which is expected to be sold in 2000.

The base case WTI price is significantly below the current NYMEX quote, and the company said it expects continued volatility in 2000, making accurate forecasting difficult. Unocal's adjusted earnings will change 14 cents per share for every $1 change in its average worldwide price of oil and 7 cents per share for every 10 cent change in the company's average Lower 48 natural gas price.

The forecasts also reflects certain assumptions on the success rate of the overall exploration portfolio. Unocal's earnings will change 11 cents per share for every 10-percent change in the overall success rate of the company's exploration drilling program.

"Our financial goals are to balance near-term returns with value growth from the portfolio, being careful not to swing the pendulum too far in either direction," said Roger C. Beach, Unocal chairman and chief executive officer. "We have to maintain capital discipline, especially in high-price cycles, and keep our balance sheet strong for maximum flexibility."

Beach added that the company is keeping the incentives for all employees, particularly top executives, aligned with the interests of the stockholders. "We have tied compensation at all levels to the company's financial performance and stockholder return, and shifted the focus of our broad goals and incentives from operations to financial returns," he said. "This includes incentives for maintaining our low-cost profile for drilling and operations while continuing to reduce our administrative headcount."

Timothy H. Ling, Unocal's chief financial officer and executive vice president for North America Energy Operations, outlined a number of base case financial projections for 2000 that were used in constructing the earnings forecast.

"We are committed to improving the corporate return on capital employed and have targeted an increase to more than 12 percent by 2004," Ling said. "We plan to do this by growing profitable production, continuing to attack our cost structure, and significantly increasing the percentage of development capital versus exploration capital."

The company has kept its capital spending flat in 2000 despite a $350 million increase in discretionary cash flow in the base case. Unocal is forecasting capital expenditures of $1.2 billion to $1.3 billion. This spending level includes capital for consolidated subsidiaries.

Ling emphasized that management's goal is to return free cash flow to the stockholders in the form of cash dividends, debt reduction and possible share repurchases.

Beach and Ling were joined by other company management who provided updates on Unocal's U.S. and international exploration and production operations.

In addition, the forecasted performance by Unocal provided a forecast for its non-E&P segments and estimated corporate expenses. A variety of factors can affect these projections, including margins for Unocal Global Trade, prices for carbon and minerals, interest rates and other unforeseen corporate costs.

Forward-looking statements regarding forecasted earnings, cash flow, capital expenditures, commodity prices, return on capital, depreciation and amortization, expenses, and expected drilling success in this news release are based on assumptions concerning operational, geological, market, competitive, regulatory, environmental, and other considerations. Actual results could differ materially as a result of factors discussed in Unocal Corporation's 1998 Form 10-K report filed with the U.S. Securities and Exchange Commission.

Updated: February 2000