press release

Unocal reports 3Q 2002 net earnings

Download 3Q earnings news release in pdf format

El Segundo, Calif., Oct. 24, 2002 - Unocal Corporation (NYSE: UCL) today reported net earnings in the third quarter of $99 million, or 41 cents per share (diluted). This compares with net earnings of $102 million, or 42 cents per share (diluted) in the same period a year ago.Unocal's adjusted after-tax earnings (excluding special items) from continuing operations were $126 million, or 52 cents per share (diluted), which is in line with previous guidance. This compares with the Thompson/First Call consensus (published Oct. 21, 2002) of 54 cents per share. In the third quarter 2001, Unocal's adjusted after-tax earnings from continuing operations were $127 million, or 52 cents per share (diluted).

CONSOLIDATED RESULTS (UNAUDITED) 3Q 2Q 3Q
Millions of dollars except per share amounts 2002 2002 2001
Adjusted after-tax earnings from continuing operations $ 126 $ 134 $ 127
Special items (27) (21) (25)
Earnings from continuing operations $ 99 $ 113 $ 102
Earnings from discontinued operations - 1 -
Net earnings $ 99 $ 114 $ 102
DILUTED EARNINGS PER SHARE DATA (UNAUDITED)
Adjusted after-tax earnings per share from continuing operations $ 0.52 $ 0.55 $ 0.52
Net earnings per share:
Continuing operations $ 0.41 $ 0.46 $ 0.42
Discontinued operations - - -
Total net earnings per share $ 0.41 $ 0.46 $ 0.42
REVENUES FROM CONTINUING OPERATIONS (UNAUDITED) $ 1,285 $ 1,356 $ 1,579

Special items

In the third quarter 2002, special items included $22 million in net after-tax provisions for environmental and litigation matters (related to inactive or closed company facilities, sites previously sold with retained liabilities, formerly operated sites, active company facilities and "Superfund" and similar sites). Special items also included a $5 million aftertax loss related to mark-to-market accruals and realized gains and losses for non-hedge commodity derivatives recorded by the company's Northrock Resources Ltd. subsidiary in Canada.The special items that were included in the company's results for 2001 and the first and second quarters of 2002 are detailed in the Quarterly Fact Book and prior period news releases, which are posted on the Unocal web site, www.unocal.com.

Third quarter earnings factors

Unocal's third quarter 2002 earnings (compared with 3Q 2001) reflected improved results from the company's International E&P operations, which benefited from higher production volumes and commodity prices, lower exploration expenses and dry hole costs, along with improved margins from midstream operations and improved carbon and mineral results (which are included in Corporate and Other segment earnings). Lower natural gas and liquids production in North America essentially offset the aforementioned positive factors.Worldwide, Unocal's consolidated net daily production in the third quarter 2002 averaged 466,000 barrels-of-oil equivalent (BOE) per day, compared with the 506,000 BOE per day a year ago. North America production averaged 237,000 BOE per day in the third quarter, down from 288,000 BOE per day a year ago. The lower production was due principally to the decline in production from the Muni field (Gulf of Mexico), which had reached peak production rates in the third quarter 2001. Other factors were the natural declines in existing fields and storm-related production curtailments in the Gulf of Mexico.The company's average worldwide price for natural gas, including the impact of hedging activities, was $2.72 per thousand cubic feet (mcf), compared with $2.75 per mcf a year ago. Unocal's worldwide average liquids prices, including the impact of hedging activities, was $24.19 per barrel, up from $22.87 in the third quarter 2001.Third quarter revenues from continuing operations were $1.29 billion, compared with $1.58 billion in the third quarter 2001. The 2002 revenues primarily reflected lower domestic U.S. natural gas and liquids production and reduced marketing activity related to Unocal's domestic equity crude production.

Nine months results

For the first nine months of 2002, Unocal's net earnings were $235 million, or 96 cents per share (diluted). This compares with $644 million, or $2.59 per share (diluted), for the same period in 2001. Excluding special items, discontinued operations and the cumulative effect of an accounting change, Unocal's adjusted after-tax earnings from continuing operations were $303 million, or $1.24 per share (diluted). This compares with $695 million, or $2.78 per share (diluted), for the same period a year ago.

CONSOLIDATED RESULTS (UNAUDITED) For the Nine Months Ended September 30,
Millions of dollars except per share amounts 2002 2001
Adjusted after-tax earnings from continuing operations $ 303 $ 695
Special items (69) (66)
Earnings from continuing operations $ 234 $ 629
Earnings from discontinued operations 1 16
Cumulative effect of accounting change - (1)
Net earnings $ 235 $ 644
DILUTED EARNINGS PER SHARE DATA (UNAUDITED)
Adjusted after-tax earnings per share from continuing operations $ 1.24 $ 2.78
Net earnings per share:
Continuing operations $ 0.96 $ 2.53
Discontinued operations - 0.06
Total net earnings per share $ 0.96 $ 2.59
REVENUES FROM CONTINUING OPERATIONS (UNAUDITED) $ 3,679 $ 5,489

Financial condition

4Q earnings outlook

Unocal is forecasting net and adjusted earnings of 50 to 60 cents per share in the fourth quarter 2002. The fourth quarter earnings forecast assumes average NYMEX benchmark prices of $29.75 per barrel of crude oil and $4.10 per million British thermal units (mmBtu) for North America natural gas.Unocal's fourth quarter forecasted earnings are expected to change 4 cents per share for every $1 change in its average worldwide realized price for crude oil and 2 cents per share for every 10-cent change in the company's average realized North America natural gas price. The forecast also assumes pretax dry hole costs in the fourth quarter of $25 to $35 million.

4Q production outlook

Early in the fourth quarter 2002 Unocal sustained significant production losses in the Gulf of Mexico as a result of Hurricane Lili, which affected the Eastern Gulf of Mexico around Unocal's production base in Ship Shoal, Eugene Island and South Marsh Island. Production shut-ins from the storm and the resulting damage to facilities will have a significant effect on fourth quarter 2002 production. Production losses from shut-ins began on Oct. 2 and were as high as 75,000 BOE per day. By Oct. 10, most of the shut-in production from facilities that did not sustain major damage had been restarted. Unocal has insurance coverage for the damages incurred, subject to a $15 million deductible.Approximately 15,000 BOE per day remains shut in as major facility damage assessments and recovery plans are being completed. The Eastern Gulf area is also where the company was planning to spend the majority of its development and workover activities in the third and fourth quarters. A significant number of these projects are currently delayed pending facility repair. The impact of these project delays is estimated to be around 4,000 BOE per day.Unocal currently expects to resume production by the end of the year from the remaining damaged facilities. The company estimates that hurricane-related impacts will lower fourth quarter production by 15,000 to 23,000 BOE per day. The company was expecting production to be essentially flat with the third quarter, with seasonal declines in Thailand canceling out growth in Canada and Pure Resources. The company's current estimate for fourth quarter 2002 production, including the effect of Hurricane Lili, is between 445,000 and 460,000 BOE per day.

Full-year 2002 outlook

Unocal is forecasting full-year 2002 net earnings of $1.46 to $1.56 per share (diluted). Expected adjusted earnings (excluding special items) for the year is $1.74 to $1.84 per share (diluted). The forecast for adjusted earnings compares with the Thompson/First Call consensus (published Oct. 21, 2002) of $1.78 per share for the year. For the full-year 2002, production is expected to average 469,000 to 472,000 BOE per day.

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. Unocal is one of the world's largest producers of geothermal energy with operations in Indonesia and the Philippines.

Conference call/financial database

Unocal will webcast its quarterly earnings conference call today at 1 p.m. PDT (4 p.m. EDT) over the Internet. To listen to the live webcast, go to the Investor Information section of the Unocal web site. Replays of the conference call, including questions and answers, will be available through Nov. 29, 2002.Complete detailed financial tables for the third quarter 2002 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 earnings, production rates, commodity prices, capital spending, insurance recoveries and dry hole 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 factors discussed in Unocal's amended 2001 Annual Report on Form 10-K/A 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 amended 2001 Annual Report on Form 10-K/A 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, www.unocal.com.

CONSOLIDATED EARNINGS (UNAUDITED) For the Three Months Ended September 30, For the Nine Months Ended September 30,
Millions of dollars except per share amounts 2002 2001 2002 2001
Revenues
Sales and operating revenues $ 1,287 $ 1,573 $ 3,660 $ 5,463
Interest, dividends and miscellaneous income (3) 8 17 27
Gain (loss) on sales of assets 1 (2) 2 (1)
Total revenues 1,285 1,579 3,679 5,489
Costs and other deductions
Crude oil, natural gas and product purchases 401 617 1,124 2,141
Operating expense 314 352 914 1,011
Administrative and general expense 34 25 114 96
Depreciation, depletion and amortization 245 246 724 714
Impairments 6 - 27 -
Dry hole costs 40 53 81 140
Exploration expense 60 61 180 172
Interest expense 40 48 134 145
Property and other operating taxes 7 19 41 60
Distributions on convertible preferred securities of subsidiary trust 8 8 24 24
Total costs and other deductions 1,155 1,429 3,363 4,503
Earnings from equity investments 35 37 123 128
Earnings from continuing operations before
income taxes and minority interests 165 187 439 1,114
Income taxes 68 77 203 447
Minority interests (2) 8 2 38
Earnings from continuing operations 99 102 234 629
Discontinued operations
Refining, marketing and transportation
Gain on disposal (net of tax) - - 1 16
Earnings from discontinued operations - - 1 16
Cumulative effect of accounting change - - - (1)
Net earnings $ 99 $ 102 $ 235 $ 644
Basic earnings per share of common stock (a)
Continuing operations $ 0.41 $ 0.42 $ 0.96 $ 2.59
Net earnings $ 0.41 $ 0.42 $ 0.96 $ 2.65
Diluted earnings per share of common stock (b)
Continuing operations $ 0.41 $ 0.42 $ 0.96 $ 2.53
Net earnings $ 0.41 $ 0.42 $ 0.96 $ 2.59
Cash dividends declared per share of common stock $ 0.20 $ 0.20 $ 0.60 $ 0.60
(a) Basic weighted average shares outstanding (in thousands) 244,664 243,601 244,503 243,426
(b) Diluted weighted average shares outstanding (in thousands) 245,226 244,566 245,378 256,812
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) At September 30, 2002 At December 31, 2001
Millions of dollars
Assets
Cash and cash equivalents $ 275 $ 190
Other current assets - net 910 1,105
Investments and long-term receivables - net 1,549 1,405
Properties - net 7,784 7,514
Other assets 282 211
Total assets $ 10,800 $ 10,425
Liabilities and Stockholders' Equity
Current liabilities (a) $ 1,458 $ 1,422
Long-term debt and capital leases 3,070 2,897
Deferred income taxes 731 627
Other deferred credits and liabilities 1,301 1,314
Subsidiary stock subject to repurchase 111 70
Minority interests 425 449
Convertible preferred securities of a subsidiary trust 522 522
Stockholders' equity 3,182 3,124
Total liabilities and stockholders' equity $ 10,800 $ 10,425
(a) Includes current portion of long-term debt of: 8 9
CONDENSED CONSOLIDATED CASH FLOWS (UNAUDITED) For the Nine Months Ended September 30,
Millions of dollars 2002 2001
Cash Flows from Operating Activities
Net earnings $ 235 $ 644
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation, depletion and amortization 724 714
Impairments 27 -
Dry hole costs 81 140
Amortization of exploratory leasehold costs 74 69
Deferred income taxes 25 113
(Gain)/loss on sales of assets (pre-tax) (2) 1
(Gain) on disposal of discontinued operations (pre-tax) (2) (25)
Earnings applicable to minority interests 2 38
Other (56) 115
Working capital and other changes related to operations 124 (29)
Net cash provided by operating activities 1,232 1,780
Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) (1,248) (1,257)
Major acquisitions - (536)
Proceeds from sales of assets 61 26
Proceeds from sale of discontinued operations 3 25
Net cash used in investing activities (1,184) (1,742)
Cash Flows from Financing Activities
Long-term borrowings 437 467
Reduction of long-term debt and capital lease obligations (267) (221)
Minority interests (6) (17)
Repurchases of common stock - -
Proceeds from issuance of common stock 19 14
Dividends paid on common stock (147) (146)
Other 1 1
Net cash provided by financing activities 37 98
Net increase in cash and cash equivalents 85 136
Cash and cash equivalents at beginning of year 190 235
Cash and cash equivalents at end of period $ 275 $ 371

The following table of adjusted discretionary cash flow is provided for analysts and others in the investment community as a supplement to conventional financial data prepared in accordance with generally accepted accounting principles because of its wide acceptance as a measure of a company's ability to internally fund exploration and development activities and to service or incur debt. Adjusted discretionary cash flow, which excludes special items, exploration expenses, and capitalized interest, assumes certain income taxes related to special or nonrecurring items are deferred, and does not give effect to working capital changes, investing activities, including capital projects, or financing activities, including those for debt reduction and regular dividends. Adjusted discretionary cash flow should be considered in conjunction with the condensed consolidated cash flows statement as presented in this news release.

ADJUSTED DISCRETIONARY CASH FLOW (UNAUDITED) 3Q 2002 2Q 2002 Nine Months Ended Sep. 30, 2002
Millions except per share amounts
Adjusted after-tax earnings $ 126 $ 134 $ 303
Adjustments to earnings, excluding special items:
Depreciation, depletion and amortization 245 255 724
Impairments 6 21 27
Dry hole costs 40 13 81
Deferred income taxes 58 17 65
Exploration expenses
(including amortization of exploratory leasehold costs) 60 61 180
Capitalized interest (14) (10) (33)
Total adjusted discretionary cash flow $ 521 $ 491 $ 1,347
Diluted weighted average shares 245 246 245
Adjusted discretionary cash flow per share (diluted) 2.13 2.00 5.50

The following table summarizes by segment both the net earnings and adjusted earnings (excluding special items) for the third quarter of 2002 and 2001. Net earnings, special items, and adjusted earnings for other periods are detailed in the Quarterly Fact Book and prior news releases that are posted on the Unocal web site.

NET EARNINGS AND ADJUSTED EARNINGS BY BUSINESS SEGMENT (UNAUDITED) 3rd Q 2002 3rd Q 2001
Net Earnings Adjusted Earnings Net Earnings Adjusted Earnings
Millions of dollars
Exploration & Production
North America
Lower 48 (a) (b) $ 13 $ 13 $ 51 $ 51
Alaska 10 10 17 17
Canada (2) 3 6 5
International
Far East 120 120 109 109
Other 16 16 2 2
Trade (1) (1) 3 3
Midstream 17 17 13 13
Geothermal and Power Operations 5 5 2 2
Corporate and Other
Administrative and General (21) (21) (19) (19)
Interest Expense - Net (a) (28) (28) (31) (31)
Environmental and Litigation (14) (3) (28) (4)
Other (a) (16) (5) (23) (21)
After-tax earnings from continuing operations 99 126 102 127
After-tax earnings $ 99 $ 126 $ 102 $ 127
(a) Includes amounts attributable to minority interests of:
Lower 48 1 1 (10) (10)
Corporate and Other 1 1 2 2
(b) Includes earnings (loss) from:
Onshore / Shelf 23 23 58 58
Deep water (10) (10) (7) (7)

OPERATING HIGHLIGHTS 3Q 2002 2Q 2002 3Q 2001
North America Net Daily Production
Liquids (thousand barrels)
Lower 48 (a) (b) 52 54 60
Alaska 24 25 26
Canada 16 17 16
Total liquids 92 96 102
Natural gas - dry basis (million cubic feet)
Lower 48 (a) (b) 716 766 939
Alaska 61 77 83
Canada 90 92 92
Total natural gas 867 935 1,114
North America Average Prices (excluding hedging activities) (c) (d)
Liquids (per barrel)
Lower 48 $ 24.76 $ 23.48 $ 23.08
Alaska $ 22.17 $ 20.86 $ 21.58
Canada $ 22.70 $ 21.92 $ 20.89
Average $ 23.70 $ 22.47 $ 22.35
Natural gas (per mcf)
Lower 48 $ 2.95 $ 3.12 $ 2.71
Alaska $ 1.20 $ 1.57 $ 1.57
Canada $ 2.08 $ 3.03 $ 2.69
Average $ 2.73 $ 2.98 $ 2.62
North America Average Prices (including hedging activities) (c) (d)
Liquids (per barrel)
Lower 48 $ 24.74 $ 23.47 $ 23.11
Alaska $ 22.17 $ 20.86 $ 21.58
Canada $ 22.70 $ 21.92 $ 20.89
Average $ 23.69 $ 22.47 $ 22.37
Natural gas (per mcf)
Lower 48 $ 2.97 $ 3.12 $ 2.97
Alaska $ 1.20 $ 1.57 $ 1.57
Canada $ 2.10 $ 2.97 $ 2.76
Average $ 2.74 $ 2.97 $ 2.85
(a) Includes proportional shares of production of equity investees.
(b) Includes minority interest shares of :
Liquids 8 9 9
Natural gas 94 98 111
Barrels oil equivalent 24 25 27
(c) Excludes Trade segment margins.
(d) Excludes gains/losses on derivative positions not accounted for as hedges and ineffective portions of hedges.
International Net Daily Production (e)
Liquids (thousand barrels)
Far East 52 54 49
Other (a) 20 20 19
Total liquids 72 74 68
Natural gas - dry basis (million cubic feet)
Far East 859 883 833
Other (a) 83 79 66
Total natural gas 942 962 899
International Average Prices (f)
Liquids (per barrel)
Far East $ 23.93 $ 22.50 $ 23.04
Other $ 26.94 $ 23.91 $ 25.27
Average $ 24.80 $ 22.84 $ 23.65
Natural gas (per mcf)
Far East $ 2.68 $ 2.63 $ 2.62
Other $ 2.80 $ 2.79 $ 2.80
Average $ 2.69 $ 2.64 $ 2.63
Worldwide Net Daily Production (a) (b) (e)
Liquids (thousand barrels) 164 170 170
Natural gas - dry basis (million cubic feet) 1,809 1,897 2,013
Barrels oil equivalent (thousands) 466 486 506
Worldwide Average Prices (excluding hedging activities) (c) (d)
Liquids (per barrel) $ 24.20 $ 22.63 $ 22.86
Natural gas (per mcf) $ 2.71 $ 2.80 $ 2.63
Worldwide Average Prices (including hedging activities) (c) (d)
Liquids (per barrel) $ 24.19 $ 22.63 $ 22.87
Natural gas (per mcf) $ 2.72 $ 2.80 $ 2.75
(a) Includes proportional shares of production of equity investees.
(b) Includes minority interest shares of:
Liquids 8 9 9
Natural gas 94 98 111
Barrels oil equivalent 24 25 27
(c) Excludes Trade segment margins.
(d) Excludes gains/losses on derivative positions not accounted for as hedges and ineffective portions of hedges.
(e) International production is presented utilizing the economic interest method.
(f) International did not have any hedging activities.

Updated: October 2002