Unocal reports 2Q 1999 earnings
Download the Quarterly Fact Book (MS Excel workbook in zip format or Adobe Acrobat pdf format)
El Segundo, Calif., July 27, 1999 - Unocal Corporation today reported preliminary net earnings of $9 million, or 4 cents per share (diluted), in the second quarter 1999.
The earnings reflected lower net special items (lower asset sales gains and environmental and litigation provisions, offset by a restructuring charge), higher corporate expense (including interest) and lower oil production volumes and agricultural products prices. These factors were offset partially by higher worldwide crude oil prices.
The 1999 results compare with reported earnings of $105 million, or 43 cents per share (diluted), a year ago.
CONSOLIDATED RESULTS UNOCAL CORPORATION (Unaudited) 2nd 1st 2nd Millions of dollars except Quarter Quarter Quarter per share amounts 1999 1999 1998 Reported after-tax earnings $9 $7 $105 Special items (10) (13) 43 Adjusted after-tax earnings $19 $20 $62 Diluted reported earnings per share $0.04 $0.03 $0.43 Diluted adjusted earnings per share $0.08 $0.08 $0.26 Adjusted discretionary cash flow $308 $256(a) $376 Adjusted discretionary cash flow per share $1.26 $1.06(a) $1.55 Total revenues $1,555 $1,231 $1,397 (a) Restated for revised income tax assumption related to The Geysers sale.
Adjusted earnings for the quarter, excluding special items, were $19 million, or 8 cents per share (diluted), compared with $62 million, or 26 cents per share, in the same period last year.
The 2Q 1999 special items included an $11 million (aftertax) restructuring charge arising from workforce reductions. The restructuring reflected the cost of terminating about 250 employees. This included 100 employees in Unocal's international operations, 95 in the Diversified Business Group, and 55 in other organizations, including corporate staff.
The second quarter 1998 special items included a $53 million aftertax gain on the sale of assets.
Adjusted discretionary cash flow was $308 million, or $1.26 per share, compared with $376 million, or $1.55 per share.
Exploration and production
"The results reflected continued strong earnings performance by Spirit Energy 76's mature assets, which more than offset the expenses related to our Gulf of Mexico deepwater exploration program," said Roger C. Beach, Unocal chairman and chief executive officer. Spirit's mature assets include the Gulf of Mexico shelf and onshore areas, as well as the Permian Basin. These assets earned approximately $41 million aftertax in the quarter to offset the $35 million aftertax costs incurred in the Gulf of Mexico deepwater exploration program.
"The dry hole costs in the second quarter tended to obscure the underlying earnings power of Spirit Energy's mature areas, which have continued to strengthen both operationally and financially because of our continued investment of capital and critical human resources," Beach said.
Beach went on to say that Spirit's deepwater portfolio represents a long-term investment, and said that the exploration expenses are much like research and development costs.
"During the quarter, we demonstrated that we can drill deepwater exploration wells at significantly lower cost than our competition," Beach said. "You can't find oil and gas unless you drill wildcats, and not every well is going to be successful. The key to success in this business is to maximize your drilling dollar, and the combination of our large prospect inventory and our 'top of class' drilling capabilities allow us to do just that. We intend to maintain our cost leadership, which will allow reserve and production growth with higher returns on investment and future earnings."
Beach noted that Unocal has participated in significant deepwater Gulf of Mexico discoveries on the Mirage prospect on Mississippi Canyon 941 and the Mad Dog prospect on Green Canyon 826. Spirit is drilling the deepwater Sumatra wildcat well, and expects to drill a delineation well to a previous discovery. The company is also participating in the K2 deepwater well that is currently being drilled by Conoco.
Spirit is currently preparing to launch its "ultradeep" Gulf of Mexico program, which will focus on prospects in the emerging fold belt and sub-salt trend that showed significant potential in the Spirit's earlier discoveries.
In addition, Sprit is very active in the Norphlet play in the Mobile area, a play characterized by significant gas resources, but difficult mechanical conditions. The company is currently drilling two highly promising prospects in the Mobile area that could provide significant increases to both the resource base and production. "We also have a very robust prospect inventory of attractive gas prospects in the area that we expect to drill in the coming years," Beach said.
Unocal's low-cost deepwater exploration techniques were developed in Indonesia. The company recently completed four more wells in the 1999 drilling program. Two wells, the Gep #1 and the Gambah #1, discovered gas-bearing pay, with minor oil shows also encountered in the Gambah #1. Additional evaluation is planned for both prospects. The Aton #2 well encountered oil shows, but no producible reservoir formations. Additional drilling is planned on the Aton structure. The Giram #1 well was plugged and abandoned with only minor gas shows; no further evaluation is planned on this prospect.
In addition, many large structures exist throughout the Rapak production-sharing contract (PSC) area. The oil shows in the Aton #2 well further demonstrate the existence of a petroleum system in the deeper waters of the Rapak PSC, outboard of the Seno, Merah Besar and Janaka North discoveries. Unocal's drilling capabilities continue to allow rapid and effective evaluation of our premier position in the deepwater Kutei Basin.
The Gep, Gambah and Giram prospects are in the Ganal PSC area (Unocal, 80% working interest), while the Aton and Janaka North prospects are located in the Rapak PSC (Unocal, 60% W.I.) area and West Seno is in the Makassar Strait PSC (Unocal, 50% W.I.) area.
For the quarter, Unocal's net worldwide production was 485,000 barrels of oil equivalent (BOE) per day, up from 470,000 BOE in the first quarter of the year. Worldwide oil and gas production was 493,000 BOE per day in the second quarter 1998. The worldwide production in the second quarter 1999 reflected declines in Indonesia and the sale of oil and gas assets in Oklahoma and Michigan.
Second quarter 1999 worldwide average sales prices were $13.99 per barrel of oil and $1.97 per thousand cubic feet (mcf) of gas. In the first quarter 1999, worldwide average sales prices were $10.40 per barrel of oil and $1.83 per mcf of gas. This compares with $11.80 per barrel of oil and $2.05 per mcf of gas last year in the second quarter.
Price protection activities
At times, Unocal employs a commodity price option program that establishes a price floor, while retaining most of the benefits of higher price movements. This program is designed to protect cash flow and the capital spending program against the effects of severe commodity price deterioration. In the first quarter 1999, for example, the program increased Unocal's price realizations by more than $11 million, or 5 cents per share, while commodity prices declined.
Prices recovered significantly and quickly in the second quarter. The price protection program resulted in lower realizations for crude oil and natural gas totaling about $5 million, or 2 cents per share, in the quarter. For the full-year 1999, based on six-month actual and the July 21 NYMEX futures prices, the company anticipates this program will lower price realizations by about 50 cents per worldwide barrel of oil and 2 cents per mcf of Spirit Energy gas. This would equate to approximately $22 million aftertax. The bulk of Unocal's existing price protection positions close out by the middle of the fourth quarter, with no significant positions in 2000. The program results exclude activities by Northrock Resources Ltd.
Corporate and unallocated
The company reported increased net interest expense due to higher debt and lower capitalized interest, along with increased benefit-related expense. Unocal's total debt at the end of the second quarter was $2.80 billion, compared with $2.56 billion at the end of 1998. Most of this increase reflects the consolidation of the company's investment in Northrock.
In the second quarter 1999, capital expenditures totaled $243 million, compared with $440 million a year ago. The company expects that capital expenditures for the full-year will total $1.1 billion, compared with $1.7 billion in 1998. The capital expenditures exclude the Northrock acquisition. If commodity prices rise as indicated by the futures market, Unocal is considering funding previously deferred near-term gas production projects, which could boost capital spending above the current expectations.
For the first six months of 1999, Unocal reported net earnings of $16 million, or 7 cents per share (diluted) on revenues of $2.79 billion. This compares with net earnings of $123 million, or 50 cents per share (diluted) on revenues of $2.60 billion last year.
Adjusted earnings for the six months were $39 million, or 16 cents per share, compared with $134 million, or 55 cents per share, reported in the same period of 1998.
Unocal is a leading independent oil and gas exploration and production company with pipeline and power plant development projects worldwide.
Detailed financial tables for the second quarter 1999 are available for download in the Investor Data Warehouse. They can be found in the "Quarterly Fact Book." A hard copy is also available by contacting Investor Relations at 310-726-7667 or via e-mail.
UNOCAL CORPORATION ADJUSTED EARNINGS BY BUSINESS SEGMENT (After-tax)(Unaudited) 2nd 1st 2nd Quarter Quarter Quarter Millions of dollars 1999 1999 1998 Exploration & Production United States Spirit Energy 76 (a)(b) $6 $1 $15 Alaska 6 2 1 International Far East 39 48 58 Other 1 (15) (15) Global Trade Global Trade -- 2 4 Pipelines 16 17 15 Geothermal and Power Operations 14 11 14 Diversified Business Group Agricultural Products 3 3 12 Carbon & Minerals (a) 7 9 8 Corporate and Unallocated New Ventures (4) (1) (5) Administrative & General (21) (21) (16) Interest Expense - Net (34) (31) (24) Environmental & Litigation (4) (2) (3) Other (10) (3) (2) Total adjusted after-tax earnings $19 $20 $62 (a) includes minority interest income/ (expense) of: Spirit Energy 76 (2) -- -- Carbon & Minerals -- -- (1) (b) includes earnings/(loss) from: Mature Areas 41 16 N/A Deepwater (35) (15) N/A UNOCAL CORPORATION ADJUSTED DISCRETIONARY CASH FLOW (Unaudited) 2nd 1st 2nd Quarter Quarter Quarter Millions except per share amounts 1999 1999 1998 Earnings excluding special items $19 $20 $62 Adjustment to earnings excluding special items: Depreciation, depletion and amortization 183 200 199 Dry hole costs 47 27 42 Deferred income taxes 28 (24)(a) 42 Exploration expenses 35 38 39 Capitalized interest (4) (5) (8) Total adjusted discretionary cash flow $308 $256(a) $376 Diluted weighted average shares 244 242 243 Adjusted discretionary cash flow per share 1.26 1.06(a) 1.55 (a) Restated for revised income tax assumption related to The Geysers sale.
The preceding table of discretionary cash flow excluding special items provided for analysts and others in the investment community as a supplement to conventional financial data prepared in accordance with generally accepted accounting principles. Discretionary cash flow assumes all income taxes related to special items are deferred and does not give effect to significant use of cash, including those for capital projects, debt reduction and regular dividends, some of which result from previous commitments, and should only be considered in conjunction with the full presentation of condensed consolidated cash flows in the company's quarterly fact book.
UNOCAL CORPORATION OPERATING HIGHLIGHTS (Unaudited) 2nd 1st 2nd Quarter Quarter Quarter 1999 1999 1998 United States Net Daily Production Crude oil (thousand barrels daily) Spirit Energy 76 40 39 44 Alaska 28 27 29 Natural gas - wet basis (million cubic feet daily) Spirit Energy 76 764 775 795 Alaska 131 153 121 United States Average Sales Prices (a) Crude oil (per barrel) Spirit Energy 76 $14.98 $11.26 $13.04 Alaska $12.02 $8.05 $8.83 Natural gas (per mcf) Spirit Energy 76 $2.05 $1.92 $2.15 Alaska $1.20 $1.20 $1.48 International Net Daily Production (b) Crude oil (thousand barrels daily) Far East 72 70 79 Other (c) 35 31 33 Natural gas (million cubic feet daily) Far East 873 848 864 Other (c) 88 39 67 International Average Sales Prices (a) Crude oil (per barrel) Far East $14.76 $10.85 $12.85 Other $13.41 $10.74 $10.31 Natural gas (per mcf) Far East $2.03 $1.88 $2.04 Other $1.90 $1.76 $2.46 Worldwide Net Daily Production (b)(c) Crude oil (thousand barrels daily)175 167 185 Natural gas (per mcf) 1,856 1,815 1,847 Worldwide Average Sales Prices (a) Crude oil (per barrel) $13.99 $10.40 $11.80 Natural gas (per mcf) $1.97 $1.83 $2.05 (a) realized prices include hedging gains and losses, but exclude other Global Trade margins. (b) production includes certain host countries' shares of: Crude oil 26 12 7 Natural gas 94 73 39 (c) production includes 100% of Northrock Resources Ltd. in Canada of: Crude oil 5 -- -- Natural gas 59 -- --
Forward looking statements and estimates regarding exploration and production activities and costs, reserves, investment returns, capital expenditures, and oil and gas prices and their related earnings effects in this news release are based on assumptions about market, competitive, regulatory, environmental, operational and other considerations. Actual results could differ materially as a result of factors discussed in Unocal's 1998 Form 10-K report filed with the Securities and Exchange Commission.
Updated: July 1999