press release

Unocal reports earnings for third quarter 2004

Download 3Q 2004 earnings news release (pdf format)

El Segundo, Calif., Oct. 28, 2004 - Unocal Corporation (NYSE: UCL) today reported preliminary net earnings for the third quarter 2004 of $330 million, or $1.23 per share (diluted), 117 percent above the $152 million, or 58 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 third quarter 2004 were $294 million, or $1.09 per share (diluted). This compares with the Thomson/First Call mean of analyst estimates (published Oct. 25, 2004) of 96 cents per share. Unocal's adjusted after-tax earnings were $190 million, or 72 cents per share (diluted), in the third quarter 2003, and $231 million, or 86 cents per share (diluted), in the second quarter 2004. Adjusted after-tax earnings are net earnings excluding special items (discussed below) and the cumulative effect of accounting changes.

    CONSOLIDATED RESULTS (UNAUDITED)           3rd Q       2nd Q       3rd Q
     Millions of dollars except per share
      amounts                                   2004        2004        2003

     Earnings from continuing operations        $329        $282        $150
     Earnings from discontinued operations         1          59           2
     Net earnings                                330         341         152
        Less:  Special items in continuing
         operations                               35          54         (38)
        Less:  Special items in
         discontinued operations                   1          56         --
     Adjusted after-tax earnings                $294        $231        $190

     DILUTED EARNINGS PER SHARE DATA
      (UNAUDITED)
     Net earnings per share:
        Continuing operations                  $1.22       $1.04       $0.57
        Discontinued operations                 0.01        0.21        0.01
     Total net earnings per share              $1.23       $1.25       $0.58
     Adjusted after-tax earnings per share     $1.09       $0.86       $0.72
     REVENUES FROM CONTINUING OPERATIONS
      (UNAUDITED)                             $1,993      $1,980      $1,535


  

"We recorded another outstanding quarter, with the results driven by continued high commodity prices," said Charles R. Williamson, Unocal chairman and chief executive officer. "We continued to execute on our major development programs in the Caspian Sea, Thailand, Bangladesh and deepwater Gulf of Mexico - programs that we believe will contribute to production growth in 2005 and 2006."

Recent operational and financial highlights

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

  • Completed the buyback of $150 million of common stock, redemption of one-half of Unocal Capital Trust's outstanding preferred convertible securities and a contribution of $100 million to Unocal's qualified U.S. pension plan
  • Ramped-up gross production at the deepwater West Seno project in Indonesia to 39,000 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
  • Signed a resolution with other investors sanctioning the Phase 3 development of the Azeri-Chirag-Deepwater Gunashli (ACG) field in the Azerbaijan sector of the Caspian Sea (Unocal, 10.28% 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
  • Approximately 85 percent of construction completed on the Baku-Tbilisi-Ceyhan export pipeline from the Caspian Sea (Unocal, 8.9% equity interest)
  • Received approximately $67 million cash from the sale of Unocal's indirect interest in its last remaining oil and natural gas assets in Brazil; possible future payments contingent on achieving certain natural gas prices and/or volume thresholds
  • Deepwater appraisal wells encountered hydrocarbons on the St. Malo prospect in the Gulf of Mexico (Unocal operator, 28.75% working interest) and on the deepwater Ranggas, Gehem and Gula prospects in Indonesia (Unocal operator of PSCs, 80% working interest)
  • Completed deepwater Gulf of Mexico Sardinia well as dry hole, but encountered significant porous sandstones (Unocal operator, 40% working interest; 3Q dry hole expense of about $1 million)
  • Completed successful delineation drilling in the South Gomin operating area in the Gulf of Thailand; first gas production expected in 2006 (Unocal operator, 71.25% working interest)
  • Elected not to proceed with its participation in five contracts to explore for, develop, and market natural gas resources in the Xihu Trough of the East China Sea

3Q 2004 financial and operating details

In the third quarter 2004, after-tax special items included $38 million in tax benefits from prior-year audit settlements with federal and state tax authorities and a $16 million gain from the sale of some non-oil and gas properties. These were offset partially by $17 million in environmental and litigation provisions. 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 third quarter 2004 adjusted after-tax earnings (compared with 3Q 2003) reflected higher worldwide crude oil and natural gas prices and lower net interest expense and litigation costs. These positive factors were partially offset by lower North America natural gas and liquids production, Xihu Trough (China) exit costs and power generation impairments. Worldwide hydrocarbon liquids and natural gas production for the third quarter 2004 averaged 407,000 BOE per day, compared with 441,000 BOE per day in the same period a year ago. The production decline was due primarily to the sale of oil and gas producing assets in North America, which accounted for nearly 27,000 BOE per day during 2003, Gulf of Mexico storms that reduced production by 2,400 BOE per day, natural production declines in North America, and lower contractor's cost recovery barrels from certain PSCs in Asia, as a result of higher commodity prices and recovery of sunk costs, which reduced production by about 10,000 BOE per day. Higher liquids production in Thailand and from the West Seno field in Indonesia partially offset these negative factors.

Third-quarter 2004 worldwide price realizations (including hedging activities) for natural gas averaged $3.90 per thousand cubic feet (mcf), up from $3.60 during the prior year's third quarter. The company's third quarter 2004 worldwide liquids price realizations (including hedging activities) were $38.85 per barrel, up from $27.28 in the third quarter 2003. Hedging activities in the 2004 third quarter decreased worldwide liquids realizations by $1.51 per barrel and decreased worldwide natural gas realizations by 3 cents per mcf.

Unocal's preliminary EBITDAX for the third quarter 2004 was $884 million, or $3.22 per share (diluted). This compares with $709 million, or $2.60 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.

The company's total consolidated long-term debt (including current maturities) was $3.1 billion at Sept. 30, 2004. Because of an accounting rule change, in the first quarter 2004 the $522 million obligation for the Unocal Capital Trust convertible preferred securities was removed from the balance sheet and replaced by a debt liability of $538 million in 6-1/4-percent junior subordinated debentures of Unocal payable to Unocal Capital Trust. Approximately $269 million of this debt liability was repaid or converted to common stock in the third quarter 2004 in connection with Unocal's partial redemption of the trust's convertible preferred securities.

Unocal's cash and cash-equivalents were $780 million at Sept. 30, 2004.

Nine-months results

Preliminary net earnings for the first nine months of 2004 were $940 million, or $3.48 per share (diluted), compared with $463 million, or $1.78 per share (diluted), reported for the same period a year ago.

Unocal's preliminary adjusted after-tax earnings for the nine months 2004 were $764 million, or $2.84 per share (diluted). Unocal's adjusted after-tax earnings were $610 million, or $2.32 per share (diluted), for the nine months 2003.

     CONSOLIDATED RESULTS (UNAUDITED)                   For the Nine Months
                                                         Ended September 30,
     Millions of dollars except per share
      amounts                                         2004              2003
     Earnings from continuing operations              $877              $529
     Earnings from discontinued operations              63                17
     Cumulative effect of accounting
      changes                                           --               (83)
     Net earnings                                      940               463
        Less:  Special items in continuing
         operations                                    119               (72)
        Less:  Special items in
         discontinued operations                        57                 8
        Less:  Cumulative effect of
         accounting changes                             --               (83)
     Adjusted after-tax earnings                      $764              $610
     DILUTED EARNINGS PER SHARE DATA
      (UNAUDITED)
     Net earnings per share:
        Continuing operations                        $3.25             $2.02
        Discontinued operations                       0.23              0.06
        Cumulative effect of accounting
         changes                                        --             (0.30)
     Total net earnings per share                    $3.48             $1.78
     Adjusted after-tax earnings per share           $2.84             $2.32
     REVENUES FROM CONTINUING OPERATIONS
      (UNAUDITED)                                   $5,858            $4,930


4Q 2004 earnings outlook

For the fourth quarter 2004, Unocal is forecasting adjusted after-tax earnings of $1.15 to $1.30 per share (diluted). This forecast compares with the Thomson/First Call mean of analyst estimates (published Oct. 25, 2004) of 99 cents per share for the fourth quarter 2004. Unocal's fourth quarter forecast assumes average NYMEX benchmark prices of $53.00 per barrel of crude oil and $7.30 per million British thermal units (mmBtu) for North America natural gas for the period.

Unocal's fourth quarter 2004 adjusted after-tax earnings are expected to change $8 million for every $1 change in its average worldwide realized price for crude oil and $3 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 fourth quarter of $50 to $75 million.

The fourth-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 fourth-quarter net earnings.

2004 production outlook

Unocal currently expects worldwide production for the full-year 2004 to exceed 405,000 BOE per day. The company's updated 2004-2005 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. PDT (4 p.m. EDT) 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 third 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 Third Quarter Results

This news release contains forward-looking statements about matters such as drilling and development plans and operations; dry hole costs; production rates, timing and growth; commodity prices; contingent payments pursuant to completed transactions; and adjusted after-tax earnings. 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; the company's ability to find or acquire commercially productive oil and gas reservoirs and to develop and produce deepwater fields and other complex projects in a timely and cost-effective manner; local demand, infrastructure and the distance to markets for the company's hydrocarbon production; the accuracy of the company's estimates and judgments regarding hydrocarbon resources and formations; decline rates of producing properties; adverse geological and other operational factors; the extent of the company's operating cash flow and other capital resources available to fund its capital expenditures; international and domestic regulatory, political, and economic considerations; negotiations with, and performance by, foreign government entities, joint venture partners, independent contractors, equipment suppliers, operators of properties in which the company has an interest, and other third parties; competition within the company's highly competitive industry; 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 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. 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.

In addition, disclosures in this news release, including in the attached tables, regarding Unocal's third quarter 2004 financial results are preliminary. These disclosures are subject to change in connection with Unocal's preparation and filing of its Form 10-Q for the third quarter 2004.

Supplemental Non-GAAP Financial Measures

The news release includes certain "non-GAAP financial measures" as defined under SEC regulations. Specifically, Unocal has referred to (1) adjusted after-tax earnings and (2) EBITDAX. Adjusted after-tax earnings are defined as net earnings excluding special items and cumulative effects of accounting changes. EBITDAX is defined as 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.

                                             For the Three      For the Nine
    CONSOLIDATED EARNINGS (UNAUDITED)         Months Ended      Months Ended
                                              September 30,     September 30,
    Millions of dollars except per share
     amounts                                  2004     2003     2004     2003
    Revenues
    Sales and operating revenues            $1,961   $1,472   $5,712   $4,797
    Interest, dividends and
      miscellaneous income                       6       (2)      36       18
    Gain on sales of assets                     26       65      110      115
          Total revenues                     1,993    1,535    5,858    4,930
    Costs and other deductions
    Crude oil, natural gas and product
     purchases                                 772      447    2,288    1,629
    Operating expense                          316      344      978      962
    Administrative and general expense          35       61      144      199
    Depreciation, depletion and
     amortization                              248      231      720      744
    Impairments                                 28       83       42       86
    Dry hole costs                              12       14       77       95
    Exploration expense                         51       39      149      182
    Interest expense                            40       45      127      119
    Property and other operating taxes          19       18       61       61
    Distributions on convertible preferred
     securities of subsidiary trust            --         8      --        24
          Total costs and other deductions   1,521    1,290    4,586    4,101

    Earnings from equity investments            31       54      106      150

    Earnings from continuing operations
     before income taxes and minority
     interests                                 503      299    1,378      979
    Income taxes                               172      145      495      442
    Minority interests                           2        4        6        8
    Earnings from continuing operations        329      150      877      529
    Earnings from discontinued operations
     (a)                                         1        2       63       17
    Cumulative effect of accounting
     changes (b)                               --       --       --       (83)
          Net earnings                        $330     $152     $940     $463
    Basic earnings per share of common
     stock (c)
          Continuing operations              $1.25    $0.58    $3.34    $2.05
          Discontinued operations             0.01     0.01     0.24     0.06
          Cumulative effect of accounting
           changes                             --       --       --     (0.32)
          Net earnings                       $1.26    $0.59    $3.58    $1.79
    Diluted earnings per share of common
     stock (d)
          Continuing operations              $1.22    $0.57    $3.25    $2.02
          Discontinued operations             0.01     0.01     0.23     0.06
          Cumulative effect of accounting
           changes                             --       --       --     (0.30)
          Net earnings                       $1.23    $0.58    $3.48    $1.78
    Cash dividends declared per share of
     common stock                            $0.20    $0.20    $0.60    $0.60
    (a)  Net of tax (benefit)                   $1       $2      $33      $11
    (b)  Net of tax (benefit)                 $--      $--      $--      $(48)
    (c)  Basic weighted average shares
     outstanding  (in thousands)           262,628  258,525  262,839  258,244
    (d)  Diluted weighted average shares
     outstanding (in thousands)            274,287  272,691  276,292  272,172


    CONDENSED CONSOLIDATED BALANCE SHEET
    (UNAUDITED)                            At September 30,  At December  31,
    Millions of dollars                               2004              2003
    Assets
    Cash and cash equivalents                         $780              $404
    Other current assets -- net                      1,699             1,587
    Investments and long-term receivables
     -- net                                            827               892
    Properties -- net                                8,639             8,324
    Goodwill                                           133               131
    Other assets                                       442               460
       Total assets                                $12,520           $11,798

    Liabilities and Stockholders' Equity
    Current liabilities (a)                         $2,163            $2,085
    Long-term debt and capital leases                2,842             2,635
    Deferred income taxes                              737               704
    Accrued abandonment, restoration and
     environmental liabilities                         891               844
    Other deferred credits and
     liabilities                                     1,016               960
    Minority interests                                  37                39

    Convertible preferred securities of a
     subsidiary trust                                  --                522

    Stockholders' equity                             4,834             4,009
       Total liabilities and
        stockholders' equity                       $12,520           $11,798
    (a) Includes current portion of
     Long-term debt and capital
     leases of:                                        235               248


    CONSOLIDATED CASH FLOWS (UNAUDITED)             For the Nine Months
                                                    Ended September 30,
    Millions of dollars                           2004               2003
    Cash Flows from Operating Activities
    Net earnings                                  $940               $463
    Adjustments to reconcile net earnings
     to net cash provided by operating
     activities
          Depreciation, depletion and
           amortization                           720                746
          Impairments                              42                 86
          Dry hole costs                           77                 95
          Amortization of exploratory
           leasehold costs                         47                 88
          Deferred income taxes                    13                102
          Gain on sales of assets                (110)              (115)
          Gain on disposal of discontinued
           operations                             (86)               (13)
          Pension expense net of
           contributions                          (35)                65
          Restructuring provisions net of
           payments                               (18)                22
          Cumulative effect of accounting
           changes                                 --                 83
          Other                                   (24)                 5
    Working capital and other changes
     related to operations
         Accounts and notes receivable             41                (15)
         Inventories                              (57)               (35)
         Accounts payable                          54                 20
         Taxes payable                             29                 55
         Other                                     59                  1
                Net cash provided by
                 operating activities           1,692              1,653
    Cash Flows from Investing Activities
       Capital expenditures (includes dry
        hole costs)                            (1,243)            (1,296)
       Proceeds from sales of assets              278                343
       Proceeds from sales of discontinued
        operations                                123                 11
       Return of capital from affiliate
        company                                    48                 --
                Net cash used in investing
                 activities                      (794)              (942)
    Cash Flows from Financing Activities
       Long-term borrowings                       137                154
       Reduction of long-term debt and
        capital lease obligations                (247)              (156)
       Minority interests                          (2)              (257)
       Repurchases of common stock               (170)                --
       Repurchases of preferred securities       (253)                --
       Proceeds from issuance of common
        stock                                     149                 15
       Dividends paid on common stock            (158)              (155)
       Loans to key employees                      24                 --
       Other                                       (2)                 5
             Net cash used in financing
              activities                         (522)              (394)
    Net increase in cash and cash
     equivalents                                  376                317
    Cash and cash equivalents at beginning
     of year                                      404                168
    Cash and cash equivalents at end of
     period                                      $780               $485



    NET EARNINGS AND ADJUSTED
    AFTER-TAX EARNINGS BY BUSINESS          3rd Q 2004         2nd Q 2004
    SEGMENT (UNAUDITED)                           Adjusted           Adjusted
                                                  After-Tax         After-Tax
                                            Net   Earnings    Net    Earnings
    Millions of dollars                 Earnings     (a)    Earnings   (a)
    Exploration and Production
       North America
              U.S.                         $97      $99       $108      $86
              Canada                        15       15         16       16
                  Total North America      112      114        124      102
       International
              Asia                         189      189        137      137
              Other                         31       31         29       29
                  Total International      220      220        166      166
    Total Exploration and Production       332      334        290      268
    Midstream and Marketing                 12       12         18       18
    Geothermal                               3        3         57       11
    Corporate and Other
              Administrative and General   (19)     (19)       (21)     (21)
              Interest Expense -- Net      (26)     (26)       (33)     (33)
              Environmental and
               Litigation                  (20)      (3)       (11)      (3)
              Other                         47       (7)       (18)     (12)
    After-tax earnings from continuing
     operations                            329      294        282      228
    After-tax earnings from discontinued
     operations                              1       --         59        3
    After-tax earnings                    $330     $294       $341     $231

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


    NET EARNINGS AND ADJUSTED
    AFTER-TAX EARNINGS BY BUSINESS           3rd Q 2004        3rd Q 2003
    SEGMENT (UNAUDITED)                            Adjusted          Adjusted
                                                  After-Tax          After-Tax
                                            Net    Earnings   Net    Earnings
    Millions of dollars                   Earnings   (a)    Earnings    (a)
    Exploration and Production
       North America
              U.S.                          $97      $99       $87      $95
              Canada                         15       15        15       15
                   Total North America      112      114       102      110
       International
              Asia                          189      189       113      113
              Other                          31       31        23       23
                   Total International      220      220       136      136
    Total Exploration and Production        332      334       238      246
    Midstream and Marketing                  12       12        19       20
    Geothermal                                3        3        19       19
    Corporate and Other
              Administrative and General    (19)     (19)      (21)     (21)
              Interest Expense -- Net       (26)     (26)      (32)     (32)
              Environmental and
               Litigation                   (20)      (3)      (33)     (15)
              Other                          47       (7)      (40)     (29)
    After-tax earnings from continuing
     operations                             329      294       150      188
    After-tax earnings from discontinued
     operations                               1      --          2        2
    After-tax earnings                     $330     $294      $152     $190

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



    NET EARNINGS AND ADJUSTED                   For the Nine Months Ended
    AFTER-TAX EARNINGS BY BUSINESS                    September 30,
    SEGMENT (UNAUDITED)                    2004     2004     2003     2003
                                                   Adjusted          Adjusted
                                                  After-Tax         After-Tax
    Millions of dollars                     Net    Earnings   Net    Earnings
                                          Earnings   (a)    Earnings    (a)
    Exploration and Production
       North America
              U.S.                           $318     $277     $310     $299
              Canada                           43       43       47       43
                   Total North America        361      320      357      342
       International
              Asia                            484      484      371      371
              Other                            77       77       52       52
                   Total International        561      561      423      423
    Total Exploration and Production          922      881      780      765
    Midstream and Marketing                    53       53       49       50
    Geothermal                                 97       30       38       38
    Corporate and Other
              Administrative and General      (67)     (67)     (66)     (66)
              Interest Expense -- Net         (91)     (91)     (91)     (91)
              Environmental and
               Litigation                     (47)     (11)     (78)     (20)
              Other                            10      (37)    (103)     (75)
    After-tax earnings from continuing
     operations                               877      758      529      601
    After-tax earnings from discontinued
     operations                                63        6       17        9
    Cumulative effect of accounting
     changes                                  --       --       (83)     --
    After-tax earnings                       $940     $764     $463     $610

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


                                             For the Three     For the Nine
    OPERATING HIGHLIGHTS                     Months Ended      Months Ended
                                             September 30,     September 30,
                                             2004     2003     2004     2003
    North America Net Daily Production
      Liquids (thousand barrels)
         U.S. (a)                              51       63       54       67
         Canada                                16       17       16       17
              Total liquids                    67       80       70       84
      Natural gas -- dry basis (million
       cubic feet)
         U.S. (a)                             486      644      503      709
         Canada                                83       90       83       91
              Total natural gas               569      734      586      800
    North America Average Prices
     (excluding hedging activities) (b)
      Liquids (per barrel)
         U. S.                             $40.37   $28.41   $35.77   $28.64
         Canada                            $35.43   $24.02   $31.22   $25.37
              Average                      $39.23   $27.47   $34.75   $27.96
      Natural gas (per mcf)
         U. S.                              $5.13    $4.52    $5.12    $5.03
         Canada                             $5.23    $4.96    $5.32    $5.24
              Average                       $5.14    $4.57    $5.15    $5.05
    North America Average Prices
     (including hedging activities) (b)
      Liquids (per barrel)
         U. S.                             $35.97   $28.27   $31.63   $28.18
         Canada                            $35.43   $24.02   $31.22   $25.37
              Average                      $35.85   $27.36   $31.54   $27.59
      Natural gas (per mcf)
         U. S.                              $5.06    $4.56    $5.19    $4.78
         Canada                             $5.01    $4.64    $5.04    $4.93
              Average                       $5.05    $4.57    $5.17    $4.79

     (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.


                                           For the Three       For the Nine
    OPERATING HIGHLIGHTS (CONTINUED)       Months Ended        Months Ended
                                           September 30,       September 30,
                                            2004      2003     2004     2003
    International Net Daily Production
     (c)
      Liquids  (thousand barrels)
         Asia                                  70       59       66       58
         Other (a)                             18       20       19       20
              Total liquids                    88       79       85       78
      Natural gas -- dry basis (million
       cubic feet)
         Asia                                 927      934      888      956
         Other (a)                             15       23       24       23
              Total natural gas               942      957      912      979
    International Average Prices (d)
      Liquids (per barrel)
         Asia                              $41.04   $26.64   $35.58   $26.92
         Other                             $42.33   $29.25   $36.63   $27.76
              Average                      $41.27   $27.20   $35.80   $27.11
      Natural gas (per mcf)
         Asia                               $3.19    $2.86    $3.09    $2.79
         Other                              $4.21    $4.57    $4.18    $4.45
              Average                       $3.20    $2.87    $3.10    $2.80

    Worldwide Net Daily Production (a)
     (c)
      Liquids  (thousand barrels)             155      159      155      162
      Natural gas -- dry basis (million
       cubic feet)                          1,511    1,691    1,498    1,779
      Barrels oil equivalent (thousands)      407      441      405      458
    Worldwide Average Prices (excluding
     hedging activities) (b)
      Liquids (per barrel)                 $40.36   $27.34   $35.32   $27.55
      Natural gas (per mcf)                 $3.93    $3.60    $3.91    $3.79
    Worldwide Average Prices (including
     hedging activities) (b)
      Liquids (per barrel)                 $38.85   $27.28   $33.85   $27.36
      Natural gas (per mcf)                 $3.90    $3.60    $3.92    $3.68

     (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)
    Millions of dollars except per share       3rd Q       2nd Q       3rd Q
     amounts                                    2004        2004        2003

    Net earnings                                $330        $341        $152
    Less: Special items from continuing
     operations
       E&P -- North America -- U.S.
            Asset sales                           (2)         22          23
            Impairment                            --          --         (31)
       Midstream & Marketing
            Impairment                            --          --          (1)
       Geothermal
            PGI settlement                        --          46          --
       Corporate and Other
            Asset sales                           16          --          --
            Environmental and litigation
             provisions                          (17)        (13)        (23)
            Net tax adjustments for
             settlements / assessments            38          27          --
            Restructuring provisions              --           1          (6)
            Provision related to Agrium
             arbitration settlement               --         (29)         --
    Less: Special items from discontinued
     operations
            Gain on asset disposals                1          56          --
         Adjusted after-tax earnings            $294        $231        $190
         Adjusted after-tax earnings per
          share (diluted)                      $1.09       $0.86       $0.72


    ADJUSTED AFTER-TAX EARNINGS
    (UNAUDITED)
                                                        For the Nine Months
    Millions of dollars except per share                Ended September 30,
     amounts                                          2004              2003
    Net earnings                                      $940              $463
    Less: Special items from continuing
     operations
       E&P -- North America -- U.S.
            Asset sales                                 26                43
            Impairment                                  --               (31)
            Litigation provisions /
             settlements                                15                (1)
       E&P -- North America -- Canada
            Derivatives -- non-hedging                  --                 4
       Midstream & Marketing
            Impairment                                  --                (1)
       Geothermal
            Asset sales                                 21                --
            PGI settlement                              46                --
       Corporate and Other
            Asset sales                                 16                --
            Environmental and litigation
             provisions                                (42)              (63)
            Net tax adjustments for
             settlements / assessments                  65                --
            Restructuring provisions                     1               (23)
            Provision related to Agrium
             arbitration settlement                    (29)               --
    Less: Special items from discontinued
     operations
            Gain on asset disposals                     57                 8
    Less: Cumulative effect of accounting
     changes                                            --               (83)
         Adjusted after-tax earnings                  $764              $610
         Adjusted after-tax earnings per
          share (diluted)                            $2.84             $2.32



    EBITDAX RECONCILIATION (UNAUDITED)      For the Three    For the Nine
                                            Months Ended     Months Ended
    Millions of dollars except              September 30,    September 30,
    per share amounts                       2004    2003     2004     2003
    Net Earnings                            $330    $152     $940     $463
    Less:
       Special items from continuing
        operations                            35     (38)     119      (72)
       Special items from discontinued
        operations                             1      --       57        8
       Cumulative effect of accounting
        changes                              --       --       --      (83)
    Adjusted after-tax earnings              294     190      764      610
    Add-backs to adjusted after-tax
     earnings:
          Depreciation, depletion and
           amortization (a)                  248     231      720      746
          Impairments                         28      31       42       34
          Dry hole costs                      12      14       77       95
          Exploration expenses (including
           amortization of
           undeveloped leasehold costs)       51      39      149      182
          Current income taxes               145      62      412      300
          Deferred income taxes               66      97      111      171
          Interest expense (b)                40      45      127      119
             EBITDAX                        $884    $709   $2,402   $2,257
    EBITDAX per share (diluted)            $3.22   $2.60    $8.69    $8.29
    (a)  Includes DD&A from discontinued
     operations of:                           --      --       --        2
    (b)  Net of capitalized interest of:      18      11       44       46

Updated: October 2004