press release

Unocal reports earnings for third quarter 2004

Download 4Q 2004 earnings news release (pdf format)

El Segundo, Calif., Feb. 1, 2005 - Unocal Corporation (NYSE: UCL) today reported preliminary net earnings for the fourth quarter 2004 of $268 million, or $1.00 per share (diluted), 49 percent above the $180 million, or 68 cents per share (diluted), reported in the same period a year ago. The earnings included a number of special items discussed below in connection with Unocal's adjusted after-tax earnings.

Unocal's preliminary adjusted after-tax earnings for the fourth quarter 2004 were $313 million, or $1.17 per share (diluted). This compares with the Thomson/First Call mean of analyst estimates (published Jan. 31, 2005) of $1.17 per share. Unocal's adjusted after-tax earnings were $167 million, or 63 cents per share (diluted), in the fourth quarter 2003, and $294 million, or $1.09 per share (diluted), in the third quarter 2004. Adjusted after-tax earnings are net earnings excluding special items (discussed below) and the cumulative effect of accounting changes.

CONSOLIDATED RESULTS (UNAUDITED)

     Millions of dollars except per share       4th Q       3rd Q       4th Q
      amounts                                    2004        2004        2003

     Earnings from continuing operations         $268        $329        $169
     Earnings from discontinued operations         --           1          11

     Net earnings                                 268         330         180

       Less:  Special items in continuing
        operations                                (45)         35           5
       Less:  Special items in
        discontinued operations                    --           1           8

     Adjusted after-tax earnings                 $313        $294        $167

     DILUTED EARNINGS PER SHARE DATA
      (UNAUDITED)
     Net earnings per share:
       Continuing operations                    $1.00       $1.22       $0.64
       Discontinued operations                     --        0.01        0.04

     Total net earnings per share               $1.00       $1.23       $0.68

     Adjusted after-tax earnings per share      $1.17       $1.09       $0.63

     REVENUES FROM CONTINUING OPERATIONS
      (UNAUDITED)                              $2,346      $1,993      $1,582



"Our earnings continue to be driven by strong crude oil and natural gas prices," said Charles R. Williamson, Unocal chairman and chief executive officer. "On top of that factor, we also saw an upturn in our international liquids and natural gas production that more than offset our North America declines on an oil-equivalent basis."

Recent operational and financial highlights

Some of Unocal's operational highlights and other developments during the fourth quarter include:

  • Signed a natural gas sales and purchase agreement to develop and produce gas from the Bibiyana field in Bangladesh
  • Ramped-up gross production at the deepwater West Seno project in Indonesia to 40,000 barrel-of-oil equivalent (BOE) per day at the end of the quarter; Unocal is operator of the production-sharing contract (PSC) with a 90% working interest
  • Progressed with construction on the Phase 1 and 2 developments of the Azerbaijan International Operating Company (AIOC) project in the Caspian Sea (Unocal, 10.28% working interest); first oil at the wellhead expected in early 2005 for Phase 1
  • More than 93 percent of construction completed on the Baku-Tbilisi-Ceyhan export pipeline from the Caspian Sea (Unocal, 8.9% equity interest)
  • Geared up for first production from the deepwater Mad Dog project in the Gulf of Mexico; production started Jan. 13, 2005
  • Non-cash dry hole and impairment expenses were significantly higher than in each of the first three quarters of 2004
  • Year-end long-term debt was reduced to $3.06 billion, down from $3.42 billion at the beginning of 2004 (which included $538 million in convertible junior subordinated debentures of Unocal payable to Unocal Capital Trust)
  • Announced a $465 million cash expenditure program to redeem the remaining outstanding convertible preferred securities and repurchase Unocal common

4Q 2004 financial and operating details

In the fourth quarter 2004, after-tax special items included charges of $43 million in environmental and litigation provisions, a $21 million Oil Insurance Limited retrospective liability increase, and a $14 million charge related to a contract settlement with Agrium Inc. These negative factors were offset partially by a $17 million gain from asset sales and a positive $15 million tax adjustment. All of the special items are detailed in the Adjusted After-tax Earnings Reconciliation table included at the end of this news release.

Unocal's fourth quarter 2004 adjusted after-tax earnings (compared with 4Q 2003) reflected higher worldwide crude oil and natural gas prices and higher international production. These positive factors were offset partially by lower North America natural gas and liquids production and higher dry hole costs.

Worldwide hydrocarbon liquids and natural gas production for the fourth quarter 2004 averaged 428,000 BOE per day, up from 420,000 BOE per day in the same period a year ago. The production increase was due primarily to higher liquids and natural gas production in Asia.

Fourth-quarter 2004 worldwide price realizations (including hedging activities) for natural gas averaged $4.15 per thousand cubic feet (mcf), up from $3.65 during the prior year's fourth quarter. The company's fourth quarter 2004 worldwide liquids price realizations (including hedging activities) were $41.27 per barrel, up from $28.33 in the fourth quarter 2003. Hedging activities in the 2004 fourth quarter decreased worldwide liquids realizations by $1.56 per barrel and decreased worldwide natural gas realizations by 20 cents per mcf.

Unocal's preliminary EBITDAX for the fourth quarter 2004 was $1.02 billion, or $3.74 per share (diluted). This compares with $660 million, or $2.41 per share (diluted), for the same period in 2003. EBITDAX is net earnings before interest, taxes, depreciation, depletion and amortization, impairments, exploration expenses, dry hole costs, special items, and the cumulative effect of accounting changes.

Full-year 2004 results

Preliminary net earnings for the full-year 2004 were a record $1.21 billion, or $4.48 per share (diluted), compared with $643 million, or $2.46 per share (diluted), reported for the same period a year ago.

 CONSOLIDATED RESULTS (UNAUDITED)

                                                         For the Year Ended
                                                             December 31,
     Millions of dollars except per share amounts         2004         2003

     Earnings from continuing operations                $1,145         $698
     Earnings from discontinued operations                  63           28
     Cumulative effect of accounting
      changes                                               --          (83)

     Net earnings                                         1,208          643

       Less:  Special items in continuing
        operations                                          74          (67)
       Less:  Special items in
        discontinued operations                             57           16
       Less:  Cumulative effect of
        accounting changes                                  --          (83)

     Adjusted after-tax earnings                        $1,077         $777

     DILUTED EARNINGS PER SHARE DATA
      (UNAUDITED)
     Net earnings per share:
       Continuing operations                             $4.25        $2.66
       Discontinued operations                            0.23         0.10
       Cumulative effect of accounting
        changes                                             --        (0.30)

     Total net earnings per share                        $4.48        $2.46

     Adjusted after-tax earnings per share               $4.00        $2.95

     REVENUES FROM CONTINUING OPERATIONS
      (UNAUDITED)                                       $8,204       $6,512

Unocal's preliminary adjusted after-tax earnings for the full-year 2004 were $1.08 billion, or $4.00 per share (diluted). Unocal's adjusted after-tax earnings were $777 million, or $2.95 per share (diluted), for the full-year 2003. The company's full-year 2004 adjusted after-tax earnings (compared with the full-year 2003) benefited from higher worldwide crude oil and natural gas prices, lower exploration expense and lower interest expense. These positive factors were partially offset by lower North America natural gas and liquids production and higher dry hole costs.

Net cash provided from operating activities increased to $2.56 billion in 2004, from $1.95 billion in 2003. Unocal's EBITDAX for the full-year 2004 was $3.42 billion, or $12.42 per share (diluted), compared with $2.92 billion, or $10.70 per share (diluted), for 2003. Cash and cash equivalents were $1.16 billion at Dec. 31, 2004, up from $404 million at Dec. 31, 2003. The increase was achieved despite paying down debt by $384 million and contributing $100 million to the company's U.S. qualified pension plan during 2004.

1Q 2005 earnings outlook

For the first quarter 2005, Unocal is forecasting adjusted after-tax earnings of $1.20 to $1.35 per share (diluted). This forecast compares with the Thomson/First Call mean of analyst estimates (published Jan. 31, 2005) of $1.09 per share for the first quarter 2005. Unocal's first quarter forecast assumes average NYMEX benchmark prices of $46.70 per barrel of crude oil and $6.25 per million British thermal units (mmBtu) for North America natural gas for the period.

Unocal's first quarter 2005 adjusted after-tax earnings are expected to change $9 million for every $1 change in its average worldwide realized price for crude oil and $2 million for every 10-cent change in its average realized North America natural gas price, excluding the effect of hedging activities.

The forecast also assumes pretax dry hole costs in the first quarter of $30 to $40 million.

The first-quarter adjusted after-tax earnings forecast excludes special items and accounting changes. Because of the inherent uncertainty related to determining whether or when these items will occur and quantifying their dollar impact, Unocal does not believe it is able to provide a meaningful forecast of first-quarter net earnings.

2005 production outlook

Unocal currently expects worldwide production for the full-year 2005 to exceed 425,000 BOE per day.

The company's updated 2005 net production outlook can be found in the Data Warehouse section of Unocal's Investor Relations web site, www.unocal.com. This document provides additional detailed ranges of the numerous areas of production, which describe the company's lowest and highest production estimates in those areas. In locations where Unocal is limited by market demand or pipeline capacity, the range is between the contract minimum and the highest past production or the estimated capacity limits of the producing assets. A sensitivity factor is provided to adjust future production for the impacts of PSC adjustments due to changes in oil prices.

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 Asia and North America.

Conference call/financial database

Unocal will webcast its quarterly earnings conference call today at 1 p.m. PST (4 p.m. EST) over the Internet. To listen to the live webcast, go to the Investor Relations section of the Unocal web site. Replays of the conference call, including questions and answers, will be available.

Additional financial tables for the fourth quarter 2004 and the comparable prior periods are available in the company's "Quarterly Fact Book," which is posted in the Data Warehouse in the Investor Relations section of the company's web site. The Quarterly Fact Book is also available upon request from Unocal Investor Relations.

Forward-Looking Statements; Preliminary 2004 Fourth Quarter and Full Year Results

This news release contains forward-looking statements about matters such as adjusted after-tax earnings, dry hole costs, and production rates and timing. Although these statements are based upon Unocal's current expectations and beliefs, they are subject to known and unknown risks and uncertainties that could cause actual results and outcomes to differ materially from those described in, or implied by, the forward-looking statements, including volatility in commodity prices; Unocal's ability to find or acquire commercially productive reservoirs and to develop and produce deepwater and other projects in a timely and cost-effective manner; the accuracy of Unocal's estimates and judgments regarding hydrocarbon resources and formations and reservoir performance; operational risks inherent in the exploration, development and production of oil and gas; the impact of environmental laws, permitting and licensing requirements and other regulations; international and domestic political and economic factors; and other factors discussed in Unocal's 2003 Annual Report on Form 10-K, as amended, and subsequent reports filed by Unocal with the U.S. Securities and Exchange Commission (SEC).

Copies of Unocal's SEC filings are available from Unocal 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. Unocal undertakes no obligation to update the forward-looking statements in this news release to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

In addition, disclosures in this news release, including in the attached tables, regarding Unocal's fourth quarter and full year 2004 financial results are preliminary and are subject to change in connection with Unocal's preparation and filing of its Form 10-K for the year ended December 31, 2004.

Supplemental Non-GAAP Financial Measures

The news release includes certain "non-GAAP financial measures" as defined under SEC regulations: (1) adjusted after-tax earnings (net earnings excluding special items and cumulative effects of accounting changes) and (2) EBITDAX (net earnings before interest, taxes, depreciation, depletion and amortization, asset impairments, exploration expenses, dry hole costs, special items and cumulative effects of accounting changes).

Special items represent certain significant matters which positively or negatively impact net earnings and that management determines to be not representative of the company's ongoing operations. Examples include: gain/loss from major asset sales; environmental remediation costs related primarily to inactive, closed or previously owned company facilities and third party sites; costs or settlements associated with major restructuring plans; litigation settlement costs primarily associated with former company operations or closed/inactive facilities; significant impairments due to changes in commodity prices; material damage to company facilities or operations due to fire, explosion, earthquakes, storms or other "acts of god" not covered by insurance; certain costs associated with major acquisitions including litigation and significant trading derivatives; and insurance recoveries associated with former company operations or for costs incurred in prior years.

Unocal's management believes that adjusted after-tax earnings is a useful supplemental financial measure to investors and analysts because it facilitates a focus on the company's ongoing operations and allows for convenient comparisons to the company's prior reporting periods. Adjusted after-tax earnings is also used as a factor in calculating various performance measures in connection with payments under the company's annual bonus plan, and it is used by management as a factor in reviewing business unit performance. Unocal's management believes that EBITDAX is helpful to investors and analysts because it facilitates a comparison of companies like Unocal that use the "successful efforts" accounting method with other companies in the exploration and production industry that utilize the "full-cost" method of accounting.

Adjusted after-tax earnings and EBITDAX are not substitutes for net earnings determined in accordance with GAAP as a measure of profitability or other GAAP financial measures. Special items excluded from these non-GAAP measures do in fact positively or negatively impact net earnings. Other companies may define special items differently, and the Thomson/First Call mean of analyst estimates may not use a similar definition. Hence, these measures may not be comparable with similarly titled amounts reported by other companies or analyst estimates reported by Thomson/First Call. A quantitative historical reconciliation of adjusted after-tax earnings and EBITDAX to GAAP net earnings is found in this news release, including certain of the tables accompanying the text.

 CONSOLIDATED EARNINGS (UNAUDITED)

                                                For the
                                              Three Months        For the
                                                 Ended          Year Ended
    Millions of dollars except per share      December 31,      December 31,
     amounts                                 2004     2003     2004     2003

    Revenues
    Sales and operating revenues            $2,291   $1,571   $8,003   $6,368
    Interest, dividends and miscellaneous
     income                                     11        7       47       25
    Gain on sales of assets                     44        4      154      119
       Total revenues                        2,346    1,582    8,204    6,512

    Costs and other deductions
    Crude oil, natural gas and product
     purchases                                 914      497    3,202    2,126
    Operating expense                          457      374    1,435    1,336
    Administrative and general expense          58       61      202      260
    Depreciation, depletion and
     amortization                              277      241      997      985
    Impairments                                 32        7       74       93
    Dry hole costs                              83       33      160      128
    Exploration expense                         52       69      201      251
    Interest expense                            33       71      160      190
    Property and other operating taxes          23       20       84       81
    Distributions on convertible preferred
     securities of subsidiary trust             --        9       --       33
       Total costs and other deductions      1,929    1,382    6,515    5,483

    Earnings from equity investments            34       42      140      192

    Earnings from continuing operations
     before income taxes and minority
     interests                                 451      242    1,829    1,221

    Income taxes                               178       72      673      514
    Minority interests                           5        1       11        9

    Earnings from continuing operations        268      169    1,145      698
    Earnings from discontinued operations (a)   --       11       63       28
    Cumulative effect of accounting
     changes (b)                                --       --       --      (83)
       Net earnings                           $268     $180   $1,208     $643

    Basic earnings per share of common
     stock (c)
       Continuing operations                 $1.02    $0.65    $4.35    $2.70
       Discontinued operations                  --     0.04     0.24     0.11
       Cumulative effect of accounting
        changes                                 --       --       --    (0.32)
       Net earnings                          $1.02    $0.69    $4.59    $2.49

    Diluted earnings per share of common
     stock (d)
       Continuing operations                 $1.00    $0.64    $4.25    $2.66
       Discontinued operations                  --     0.04     0.23     0.10
       Cumulative effect of accounting
        changes                                 --       --       --    (0.30)
       Net earnings                          $1.00    $0.68    $4.48    $2.46

    Cash dividends declared per share of
     common stock                            $0.20    $0.20    $0.80    $0.80

    (a) Net of tax (benefit)                   $--       $2      $33      $13
    (b) Net of tax (benefit)                   $--      $--      $--     $(48)
    (c) Basic weighted average shares
        outstanding  (in thousands)        263,374  259,521  262,973  258,563
    (d) Diluted weighted average shares
        outstanding (in thousands)         271,280  274,025  275,115  272,722



    CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
                                                        At            At
                                                   December 31,   December 31,
    Millions of dollars                                2004          2003

    Assets
    Cash and cash equivalents                         $1,160          $404
    Other current assets - net                         1,770         1,587
    Investments and long-term receivables - net          777           892
    Properties - net                                   8,819         8,324
    Goodwill                                             136           131
    Other assets                                         439           460
       Total assets                                  $13,101       $11,798

    Liabilities and Stockholders' Equity
    Current liabilities (a)                           $2,581        $2,085
    Long-term debt and capital leases                  2,571         2,635
    Deferred income taxes                                839           704
    Accrued abandonment, restoration and
     environmental liabilities                           917           844
    Other deferred credits and liabilities               949           960
    Minority interests                                    27            39

    Convertible preferred securities of a
     subsidiary trust                                     --           522

    Stockholders' equity                               5,217         4,009

       Total liabilities and stockholders' equity    $13,101       $11,798

    (a) Includes current portion of
        Long-term debt and capital leases
        of:                                              491           248



    CONSOLIDATED CASH FLOWS (UNAUDITED)

                                                       For the Year Ended
                                                           December 31,
    Millions of dollars                                2004           2003

    Cash Flows from Operating Activities
    Net earnings                                      $1,208          $643
    Adjustments to reconcile net earnings
     to net cash provided by operating
     activities
       Depreciation, depletion and amortization          997           988
       Impairments                                        74            93
       Dry hole costs                                    160           128
       Amortization of exploratory leasehold costs        61           108
       Deferred income taxes                             134            56
       Gain on sales of assets                          (154)         (119)
       Gain on disposal of discontinued operations       (86)          (25)
       Pension expense net of contributions              (14)           58
       Restructuring provisions net of payments          (24)           27
       Cumulative effect of accounting changes            --            83
       Other                                             107            (3)
    Working capital and other changes
     related to operations                                93           (88)
          Net cash provided by
           operating activities                        2,556         1,949

    Cash Flows from Investing Activities
      Capital expenditures (includes dry hole costs)  (1,744)      (1,718)
      Proceeds from sales of assets                      377          642
      Proceeds from sales of discontinued operations     123           11
      Return of capital from affiliate
       company                                            48           --
          Net cash used in
           investing activities                       (1,196)      (1,065)

    Cash Flows from Financing Activities
      Long-term borrowings                               138          205
      Reduction of long-term debt and
       capital lease obligations                        (522)        (452)
      Minority interests                                  (3)        (257)
      Repurchases of common stock                       (223)          --
      Proceeds from issuance of common
       stock                                             195           58
      Dividends paid on common stock                    (210)        (207)
      Loans to key employees                              25           11
       Other                                              (4)          (6)
          Net cash used in financing
              activities                                (604)        (648)

    Net increase in cash and cash equivalents            756          236

    Cash and cash equivalents at beginning of year       404          168

    Cash and cash equivalents at end of period        $1,160         $404



    NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS
    BY BUSINESS SEGMENT (UNAUDITED)

                                    4th Q 2004               3rd Q 2004
                                          Adjusted                  Adjusted
                               Net       After-Tax       Net       After-Tax
    Millions of dollars      Earnings   Earnings (a)   Earnings   Earnings (a)

    Exploration and Production
      North America
        U.S.                     $77         $77         $97         $99
        Canada                    14          14          15          15
          Total North America     91          91         112         114
      International
        Asia                     187         187         189         189
        Other                     31          31          31          31
          Total International    218         218         220         220
    Total Exploration and
     Production                  309         309         332         334
    Midstream and Marketing       26          26          12          12
    Geothermal                    22          22           3           3
    Corporate and Other
      Administrative and
       General                   (28)        (28)        (19)        (19)
      Interest Expense - Net     (20)        (20)        (26)        (26)
      Environmental and
       Litigation                (47)         (5)        (20)         (3)
      Other                        6           9          47          (7)
    After-tax earnings from
     continuing operations       268         313         329         294
    After-tax earnings from
     discontinued operations      --          --           1          --
    After-tax earnings          $268        $313        $330        $294

    (a) For a reconciliation to net earnings, see the Adjusted After-Tax
        Earnings Reconciliation table.



    NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS
    BY BUSINESS SEGMENT (UNAUDITED)

                                    4th Q 2004               4th Q 2003
                                          Adjusted                  Adjusted
                                Net      After-Tax       Net       After-Tax
    Millions of dollars      Earnings   Earnings (a)   Earnings   Earnings (a)

    Exploration and Production
      North America
        U.S.                     $77         $77         $74         $71
        Canada                    14          14          32           7
          Total North America     91          91         106          78
      International
        Asia                     187         187         126         126
        Other                     31          31          12          12
          Total International    218         218         138         138
    Total Exploration and
     Production                  309         309         244         216
    Midstream and Marketing       26          26          21          17
    Geothermal                    22          22          12          12
    Corporate and Other
      Administrative and
       General                   (28)        (28)        (26)        (26)
      Interest Expense - Net     (20)        (20)        (54)        (26)
      Environmental and
       Litigation                (47)         (5)        (24)         (8)
      Other                        6           9          (4)        (21)
    After-tax earnings from
     continuing operations       268         313         169         164
    After-tax earnings from
     discontinued operations      --          --          11           3
    After-tax earnings          $268        $313        $180        $167

    (a) For a reconciliation to net earnings, see the Adjusted After-Tax
        Earnings Reconciliation table.



    NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS
    BY BUSINESS SEGMENT (UNAUDITED)

                                       For The Year Ended December 31,
                               2004         2004        2003          2003
                                          Adjusted                  Adjusted
                                Net      After-Tax       Net       After-Tax
    Millions of dollars      Earnings   Earnings (a)   Earnings   Earnings (a)

    Exploration and Production
      North America
        U.S.                    $395        $354        $384        $370
        Canada                    57          57          79          50
          Total North America    452         411         463         420
      International
        Asia                     671         671         497         497
        Other                    108         108          64          64
          Total International    779         779         561         561
    Total Exploration and
     Production                1,231       1,190       1,024         981
    Midstream and Marketing       79          79          70          67
    Geothermal                   119          52          50          50
    Corporate and Other
      Administrative and
       General                   (95)        (95)        (92)        (92)
      Interest Expense - Net    (111)       (111)       (145)       (117)
      Environmental and
       Litigation                (94)        (16)       (102)        (28)
      Other                       16         (28)       (107)        (96)
    After-tax earnings from
     continuing operations     1,145       1,071         698         765
    After-tax earnings from
     discontinued operations      63           6          28          12
    Cumulative effect of
     accounting changes           --          --         (83)         --
    After-tax earnings        $1,208      $1,077        $643        $777

    (a) For a reconciliation to net earnings, see the Adjusted After-Tax
        Earnings Reconciliation table.



    OPERATING HIGHLIGHTS

                                    For the Three Months     For the Year
                                     Ended December 31,    Ended December 31,
                                       2004      2003        2004      2003
    North America Net Daily
     Production
       Liquids (thousand barrels)
         U.S. (a)                        53        58          54        64
         Canada                          16        17          16        17
              Total liquids              69        75          70        81
       Natural gas - dry basis
       (million cubic feet)
         U.S. (a)                       470       566         495       673
         Canada                          81        89          83        90
              Total natural gas         551       655         578       763

    North America Average Prices
     (excluding hedging activities) (b)
       Liquids (per barrel)
         U.S.                        $44.53    $28.81      $37.82    $28.67
         Canada                      $35.60    $22.94      $32.31    $24.76
              Average                $42.47    $27.52      $36.57    $27.84
       Natural gas (per mcf)
         U.S.                         $6.03     $4.25       $5.33     $4.85
         Canada                       $5.95     $4.56       $5.48     $5.07
              Average                 $6.02     $4.30       $5.35     $4.88

    North America Average Prices
     (including hedging activities) (b)
       Liquids (per barrel)
         U.S.                        $39.46    $29.30      $33.45    $28.43
         Canada                      $35.60    $22.94      $32.31    $24.76
              Average                $38.57    $27.90      $33.19    $27.66
       Natural gas (per mcf)
         U.S.                         $5.39     $4.66       $5.23     $4.75
         Canada                       $5.85     $4.34       $5.24     $4.78
              Average                 $5.45     $4.61       $5.23     $4.76

    (a) Includes proportional interests in production of equity investees.
    (b) Excludes gains/losses on derivative positions not accounted for as
        hedges and ineffective portions of hedges.



    OPERATING HIGHLIGHTS (CONTINUED)

                                    For the Three Months     For the Year
                                     Ended December 31,    Ended December 31,
                                       2004      2003        2004      2003
    International Net Daily
     Production (c)
       Liquids  (thousand barrels)
         Asia                            83        63          70        59
         Other (a)                       19        19          19        20
              Total liquids             102        82          89        79
       Natural gas - dry basis
       (million cubic feet)
         Asia                           982       896         912       941
         Other (a)                       11        26          20        24
              Total natural gas         993       922         932       965

    International Average Prices (d)
       Liquids (per barrel)
         Asia                        $42.87    $28.40      $37.76    $27.30
         Other                       $43.89    $29.70      $38.64    $28.31
              Average                $43.06    $28.73      $37.94    $27.54
       Natural gas (per mcf)
         Asia                         $3.41     $2.95       $3.17     $2.82
         Other                        $4.71     $4.26       $4.32     $4.38
              Average                 $3.43     $2.96       $3.19     $2.84

    Worldwide Net Daily
     Production (a) (c)
       Liquids  (thousand barrels)      171       157         159       160
       Natural gas - dry basis
       (million cubic feet)           1,544     1,577       1,510     1,728
       Barrels oil equivalent
        (thousands)                     428       420         411       448
    Worldwide Average Prices
     (excluding hedging
      activities) (b)
       Liquids (per barrel)          $42.83    $28.14      $37.33    $27.70
       Natural gas (per mcf)          $4.35     $3.51       $4.02     $3.73
    Worldwide Average Prices
    (including hedging
     activities) (b)
       Liquids (per barrel)          $41.27    $28.33      $35.84    $27.60
       Natural gas (per mcf)          $4.15     $3.65       $3.98     $3.66

    (a) Includes proportional interests in production of equity investees.
    (b) Excludes gains/losses on derivative positions not accounted for as
        hedges and ineffective portions of hedges.
    (c) International production is  presented utilizing the economic
        interest method.
    (d) International did not have any hedging activities.



    ADJUSTED AFTER-TAX EARNINGS RECONCILIATION (UNAUDITED)

                                                     4th Q    3rd Q    4th Q
    Millions of dollars except per share amounts      2004     2004     2003

    Net earnings                                      $268     $330     $180
    Less: Special items from continuing
     operations
      E&P - North America - U.S.
        Asset sales                                     --       (2)       3
      E&P - North America - Canada
        Statutory tax rate change                       --       --       25
      Midstream & Marketing
        Canadian statutory tax rate change              --       --        4
      Corporate and Other
        Asset sales                                     17       16       --
        Environmental and litigation provisions        (43)     (17)     (15)
        Net tax adjustments for
         settlements / assessments                      15       38       --
        Debt repurchase premium                         --       --      (28)
        Insurance settlements                           --       --       17
        Restructuring provisions                         1       --       (1)
        Oil Insurance Limited retrospective
         liability increase                            (21)      --       --
        Agrium settlement                              (14)      --       --
    Less: Special items from discontinued operations
        Gain on asset disposals                         --        1        8

      Adjusted after-tax earnings                     $313     $294     $167

      Adjusted after-tax earnings per
       share (diluted)                               $1.17    $1.09    $0.63



    ADJUSTED AFTER-TAX EARNINGS RECONCILIATION (UNAUDITED)

                                                       For the Year Ended
                                                           December 31,
    Millions of dollars except per share amounts       2004           2003

    Net earnings                                      $1,208          $643
    Less: Special items from continuing operations
       E&P - North America - U.S.
         Asset sales                                      26            46
         Impairment                                       --           (31)
         Litigation provisions / settlements              15            (1)
       E&P - North America - Canada
         Statutory tax rate change                        --            25
         Derivatives -- non-hedging                       --             4
       Midstream & Marketing
         Canadian statutory tax rate change               --             4
         Impairment                                       --            (1)
       Geothermal
         Asset sales                                      21            --
         UPI settlement                                   46            --
       Corporate and Other
         Asset sales                                      33            --
         Environmental and litigation provisions         (85)          (78)
         Net tax adjustments for
          settlements / assessments                       80            --
         Debt repurchase premium                          --           (28)
         Insurance settlements                            --            17
         Restructuring provisions                          2           (24)
         Oil Insurance Limited retrospective
          liability increase                             (21)           --
         Agrium settlements                              (43)           --
    Less: Special items from discontinued operations
         Gain on asset disposals                          57            16
    Less: Cumulative effect of accounting changes         --           (83)

      Adjusted after-tax earnings                     $1,077          $777

      Adjusted after-tax earnings
       per share (diluted)                             $4.00         $2.95



    EBITDAX RECONCILIATION (UNAUDITED)

                                    For the Three Months     For the Year
    Millions of dollars except       Ended December 31,    Ended December 31,
     per share amounts                 2004      2003       2004       2003

    Net Earnings                       $268      $180      $1,208      $643
    Less:
      Special items from continuing
       operations                       (45)        5          74       (67)
      Special items from discontinued
       operations                        --         8          57        16
      Cumulative effect of accounting
       changes                           --        --          --       (83)

    Adjusted after-tax earnings         313       167       1,077       777

    Add-backs to adjusted after-tax
     earnings:
      Depreciation, depletion and
       amortization (a)                 277       242         997       988
      Impairments                        32         7          74        41
      Dry hole costs                     83        33         160       128
      Exploration expenses (including
       amortization of undeveloped
       leasehold costs)                  52        69         201       251
      Current income taxes              153       112         565       412
      Deferred income taxes              72        (8)        183       163
      Interest expense (b)               33        38         160       157
         EBITDAX                     $1,015      $660      $3,417    $2,917

    EBITDAX per share (diluted)       $3.74     $2.41      $12.42    $10.70

    (a) Includes DD&A from discontinued
        operations of:                   --         1          --         3
    (b) Net of capitalized interest of:  21        14          65        60



Updated: February 2005