press release

Unocal reports record quarterly earnings; net up 69%

Download 1Q 2005 earnings news release (pdf format)

EL SEGUNDO, Calif., April 28, 2005 -- Unocal Corporation (NYSE: UCL) today reported preliminary net earnings for the first quarter 2005 of $454 million, or $1.66 per share (diluted), 69 percent above the $269 million, or $1.00 per share (diluted), reported in the same period a year ago. The net earnings, the highest quarterly level in the company's history, 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 first quarter 2005 were $441 million, or $1.62 per share (diluted). This compares with the Thomson/First Call mean of analyst estimates (published Apr. 25, 2005) of $1.37 per share. In the first quarter 2004, Unocal's adjusted after-tax earnings were $239 million, or 89 cents per share (diluted). In the fourth quarter 2004, Unocal's adjusted after-tax earnings were $313 million, or $1.17 per share (diluted). Adjusted after-tax earnings are net earnings excluding special items (discussed below) and the cumulative effect of accounting changes.

CONSOLIDATED RESULTS (UNAUDITED)               1st Q     4th Q     1st Q
     Millions of dollars except per share amounts    2005      2004      2004

     Earnings from continuing operations             $449      $268      $267
     Earnings from discontinued operations              5        --         2
     Net earnings                                     454       268       269
       Less:  Special items in continuing
        operations                                     11       (45)       30
       Less:  Special items in
        discontinued operations                         2        --        --
     Adjusted after-tax earnings                     $441      $313      $239

     DILUTED EARNINGS PER SHARE DATA (UNAUDITED)
     Net earnings per share:
       Continuing operations                        $1.64     $1.00     $0.99
       Discontinued operations                       0.02        --      0.01
     Total net earnings per share                   $1.66     $1.00     $1.00
     Adjusted after-tax earnings per share          $1.62     $1.17     $0.89
     REVENUES FROM CONTINUING OPERATIONS
      (UNAUDITED)                                  $2,186    $2,320    $1,876

"Our earnings in the first quarter were driven primarily by strong crude oil and natural gas prices, a 5 percent increase in our worldwide crude oil and natural gas production over the first quarter a year ago, and lower interest expense," said Charles R. Williamson, Unocal chairman and chief executive officer. "We initiated production from the first three major projects in our 2005 development pipeline - Mad Dog in the deepwater Gulf of Mexico, Central Azeri in the Caspian Sea, and Moulavi Bazar in Bangladesh. Looking forward, we expect initial oil production from two additional development projects on tap for this year - K2 in deepwater Gulf of Mexico and the Pattani oil development offshore Thailand."

Recent operational and financial highlights

Some of Unocal's recent operational highlights and other developments include:

  • Entered into a merger agreement with ChevronTexaco Corporation to merge Unocal into a wholly owned subsidiary of ChevronTexaco; agreement is subject to Unocal stockholder approval, regulatory approvals and clearances and other customary closing conditions
  • Began production from the Mad Dog deepwater Gulf of Mexico field (Unocal working interest, 15.6%); 1Q exit rate from two wells of 30,000 barrels-of-oil equivalent (BOE) per day gross, 4,100 BOE per day net
  • Began oil production from Phase 1 (Central Azeri) in the Azeri-Chirag-Gunashli development in the Caspian Sea (Unocal, 10.3% interest), raising gross AIOC production at the end of the quarter to approximately 200,000 BOE per day (Unocal, 18,300 BOE per day net)
  • Began natural gas production from the Moulavi Bazar field in Bangladesh, Unocal is operator and has a 100% working interest in the production-sharing contract encompassing two producing fields; 1Q exit rate for Bangladesh operations, including the Jalalabad field, was 41,000 BOE per day (gross), Unocal, 33,000 BOE per day net
  • Successful appraisal well on the Mad Dog Southwest Ridge in the Gulf of Mexico encountered significant hydrocarbons, extending the limits of the field
  • Completed the redemption of the outstanding 6-1/4% Trust Convertible Preferred Securities of Unocal Capital Trust
  • Reduced total debt by $332 million to $2.73 billion
  • Added $523 million to cash balance, bringing total cash to $1.68 billion; net debt (debt minus cash) reduced to $1.05 billion
  • Reached final settlement of lawsuits related to Unocal's investment in the Yadana gas pipeline project in Myanmar

1Q 2005 financial and operating details

Unocal's first quarter 2005 adjusted after-tax earnings (compared with 1Q 2004) reflected higher worldwide crude oil and natural gas prices, international production and natural gas storage margins, and lower exploration and dry hole costs and interest expense. These positive factors were offset partially by lower North America natural gas production and higher administrative and general expense.

In the first quarter 2005, after-tax special items included a $22 million gain from the sale of Unocal's interest in Hindustan Oil Exploration Company, which was offset partially by $11 million in provisions for environmental and litigation matters. All of the special items are detailed in the Adjusted After-tax Earnings Reconciliation table included at the end of this news release. Worldwide hydrocarbon liquids and natural gas production for the first quarter 2005 averaged 429,000 BOE per day, up from 409,000 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.

First-quarter 2005 worldwide price realizations (including hedging activities) for natural gas averaged $4.28 per thousand cubic feet (mcf), up from $4.00 during the prior year's first quarter. The company's first quarter 2005 worldwide liquids price realizations (including hedging activities) were $44.72 per barrel, up from $30.64 in the first quarter 2004. Hedging activities in the 2005 first quarter decreased worldwide liquids realizations by 8 cents per barrel and increased worldwide natural gas realizations by 20 cents per mcf.

Unocal's preliminary EBITDAX for the first quarter 2005 was $1.08 billion, or $3.95 per share (diluted). This compares with $756 million, or $2.73 per share (diluted), for the same period in 2004. 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 2005 production outlook

Unocal currently expects worldwide average production for the full-year 2005 to exceed 430,000 BOE per day, up from 425,000 BOE per day that was previously estimated.

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 estimated second quarter ranges for 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.

Discontinued earnings forecasts and conference calls

Pending Unocal's anticipated merger with ChevronTexaco, the company has discontinued providing its forecast of adjusted after-tax earnings per share, including its related assumptions for future commodity prices and future dry hole costs. Unocal has also discontinued holding quarterly earnings conference calls.

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.

Financial database

Additional financial tables for the first quarter 2005 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 2005 First Quarter Results

This news release contains forward-looking statements about matters such as Unocal's merger with ChevronTexaco 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 whether the pending merger with ChevronTexaco is completed and the effects on Unocal in the event that it is not completed; 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 2004 Annual Report on Form 10-K 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 first quarter 2005 financial results are preliminary and are subject to change in connection with Unocal's preparation and filing of its Form 10-Q for the three months ended March 31, 2005.

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
                                                           Ended March 31,
    Millions of dollars except per share amounts          2005         2004

    Revenues
    Sales and operating revenues (a)                     $2,157       $1,821
    Interest, dividends and miscellaneous
     income                                                   9           11
    Gain on sales of assets                                  20           44
          Total revenues                                  2,186        1,876
    Costs and other deductions
    Crude oil, natural gas and product purchases (a)        754          744
    Operating expense                                       307          281
    Administrative and general expense                       78           63
    Depreciation, depletion and amortization                276          232
    Impairments                                              --            5
    Dry hole costs                                           20           25
    Exploration expense                                      38           50
    Interest expense                                         33           41
    Property and other operating taxes                       21           20
          Total costs and other deductions                1,527        1,461
    Earnings from equity investments                         39           37

    Earnings from continuing operations before
     income taxes and minority interests                    698          452

    Income taxes                                            247          180
    Minority interests                                        2            5

    Earnings from continuing operations                     449          267
    Earnings from discontinued operations (b)                 5            2

          Net earnings                                     $454         $269

    Basic earnings per share of common stock (c)
          Continuing operations                           $1.66        $1.02
          Discontinued operations                          0.02         0.01
          Net earnings                                    $1.68        $1.03

    Diluted earnings per share of common stock (d)
          Continuing operations                           $1.64        $0.99
          Discontinued operations                          0.02         0.01
          Net earnings                                    $1.66        $1.00

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

    (a)  Includes crude oil buy/sell transactions
         settled in cash of:                               $163         $252
    (b)  Net of tax (benefit)                                $4           $1
    (c)  Basic weighted average shares outstanding
         (in thousands)                                 270,445      261,974
    (d)  Diluted weighted average shares outstanding
         (in thousands)                                 273,270      276,889



    CONDENSED CONSOLIDATED BALANCE SHEET
    (UNAUDITED)                                 At March 31,   At December 31,
    Millions of dollars                             2005            2004

    Assets
    Cash and cash equivalents                      $1,683          $1,160
    Other current assets - net                      1,714           1,770
    Investments and long-term receivables - net       717             777
    Properties - net                                8,916           8,819
    Goodwill                                          135             136
    Other assets                                      525             439
       Total assets                               $13,690         $13,101

    Liabilities and Stockholders' Equity
    Current liabilities (a)                        $2,655          $2,581
    Long-term debt and capital leases               2,302           2,571
    Deferred income taxes                             849             839
    Accrued abandonment, restoration and
     environmental liabilities                        900             897
    Other deferred credits and liabilities          1,078             969
    Minority interests                                 28              27

    Stockholders' equity                            5,878           5,217
       Total liabilities and
        stockholders' equity                      $13,690         $13,101

    (a)  Includes current portion of Long-term
         debt and capital leases of:                  428             491



    CONSOLIDATED CASH FLOWS (UNAUDITED)                   For the Three Months
                                                             Ended March 31,
    Millions of dollars                                     2005        2004

    Cash Flows from Operating Activities
    Net earnings                                            $454        $269
    Adjustments to reconcile net earnings to
     net cash provided by operating activities
       Depreciation, depletion and amortization              276         232
       Impairments                                            --           5
       Dry hole costs                                         20          25
       Amortization of exploratory leasehold costs            14          16
       Deferred income taxes                                  43          28
       Gain on sales of assets                               (20)        (44)
       Gain on disposal of discontinued operations            (4)         --
       Pension expense net of contributions                   24          23
       Other                                                  (4)        (13)
    Working capital and other changes related
     to operations                                           105         209
          Net cash provided by operating activities          908         750
    Cash Flows from Investing Activities
       Capital expenditures (includes dry hole costs)       (419)       (360)
       Proceeds from sales of assets                          96          72
       Return of capital from affiliate company               --          52
          Net cash used in investing activities             (323)       (236)
    Cash Flows from Financing Activities
       Long-term borrowings                                   --          40
       Reduction of long-term debt and capital
        lease obligations                                   (102)       (197)
       Minority interests                                     (2)         --
       Repurchases of common stock                            --         (20)
       Proceeds from issuance of common stock                 95          51
       Dividends paid on common stock                        (53)        (52)
       Loans to key employees                                 --          20
          Net cash used in financing activities              (62)       (158)
    Net increase in cash and cash equivalents                523         356
    Cash and cash equivalents at beginning of year         1,160         404
    Cash and cash equivalents at end of period            $1,683        $760



    NET EARNINGS AND ADJUSTED AFTER-TAX EARNINGS
    BY BUSINESS SEGMENT            1st Q 2005              4th Q 2004
    (UNAUDITED)                         Adjusted                  Adjusted
                                Net     After-Tax         Net     After-Tax
    Millions of dollars      Earnings   Earnings (a)   Earnings   Earnings (a)

    Exploration and
     Production
       North America
         U.S.                  $154       $154           $77         $77
         Canada                  18         18            14          14
           Total
            North America       172        172            91          91
       International
         Asia                   251        229           187         187
         Other                   48         48            31          31
           Total
            International       299        277           218         218
    Total Exploration and
     Production                 471        449           309         309
    Midstream and Marketing      35         35            26          26
    Geothermal                   17         17            22          22
    Corporate and Other
       Administrative and
        General                 (29)       (29)          (28)        (28)
       Interest Expense - Net   (15)       (15)          (20)        (20)
       Environmental and
       Litigation               (12)        (2)          (47)         (5)
       Other                    (18)       (17)            6           9
    After-tax earnings from
     continuing operations      449        438           268         313
    After-tax earnings from
     discontinued operations      5          3            --          --
    After-tax earnings         $454       $441          $268        $313

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



    NET EARNINGS AND ADJUSTED AFTER-TAX
    BY BUSINESS SEGMENT            1st Q 2005              1st Q 2004
    (UNAUDITED)                         Adjusted                  Adjusted
                                Net     After-Tax         Net     After-Tax
    Millions of dollars      Earnings   Earnings (a)   Earnings   Earnings (a)

    Exploration and
     Production
       North America
         U.S.                  $154       $154          $113         $92
         Canada                  18         18            12          12
           Total North
            America             172        172           125         104
       International
         Asia                   251        229           158         158
         Other                   48         48            17          17
           Total
            International       299        277           175         175
    Total Exploration and
     Production                 471        449           300         279
    Midstream and Marketing      35         35            23          23
    Geothermal                   17         17            37          16
    Corporate and Other
       Administrative and
        General                 (29)       (29)          (27)        (27)
       Interest Expense - Net   (15)       (15)          (32)        (32)
       Environmental and
       Litigation               (12)        (2)          (16)         (5)
       Other                    (18)       (17)          (18)        (17)
    After-tax earnings from
     continuing operations      449        438           267         237
    After-tax earnings from
     discontinued operations      5          3             2           2
    After-tax earnings         $454       $441          $269        $239

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



    OPERATING HIGHLIGHTS                                 For the Three Months
                                                            Ended March 31,
                                                          2005          2004
    North America Net Daily Production
      Liquids (thousand barrels)
        U.S.                                               57            55
        Canada                                             16            17
          Total liquids                                    73            72
      Natural gas - dry basis (million cubic feet)
        U.S.                                              456           515
        Canada                                             83            84
          Total natural gas                               539           599
    North America Average Prices
     (excluding hedging activities) (a)
      Liquids (per barrel)
        U.S.                                           $44.72        $32.66
        Canada                                         $38.31        $28.51
          Average                                      $43.35        $31.71
      Natural gas (per mcf)
        U.S.                                            $5.26         $5.04
        Canada                                          $5.69         $5.38
          Average                                       $5.32         $5.09
    North America Average Prices
     (including hedging activities) (a)
      Liquids (per barrel)
        U.S.                                           $44.46        $29.87
        Canada                                         $38.31        $28.51
          Average                                      $43.15        $29.56
      Natural gas (per mcf)
        U.S.                                            $5.93         $5.57
        Canada                                          $5.69         $5.08
          Average                                       $5.90         $5.50

    (a)  Excludes gains/losses on derivative positions not accounted for as
         hedges and ineffective portions of hedges.



    OPERATING HIGHLIGHTS (Continued)                      For the Three Months
                                                            Ended March 31,
                                                          2005           2004
    International Net Daily Production (a)
      Liquids  (thousand barrels)
        Asia                                               76             66
        Other (b)                                          20             20
          Total liquids                                    96             86
      Natural gas - dry basis (million cubic feet)
        Asia                                            1,011            884
        Other (b)                                          10             25
          Total natural gas                             1,021            909
    International Average Prices (c)
      Liquids (per barrel)
        Asia                                           $45.50         $31.44
        Other                                          $47.57         $32.12
          Average                                      $45.93         $31.57
      Natural gas (per mcf)
        Asia                                            $3.40          $2.97
        Other                                           $5.26          $4.29
          Average                                       $3.41          $2.98
    Worldwide Net Daily Production (b)
      Liquids  (thousand barrels)                         169            158
      Natural gas - dry basis (million cubic feet)      1,560          1,508
      Barrels oil equivalent (thousands)                  429            409
    Worldwide Average Prices (excluding
     hedging activities) (d)
      Liquids (per barrel)                             $44.80         $31.64
      Natural gas (per mcf)                             $4.08          $3.83
    Worldwide Average Prices (including
     hedging activities) (d)
      Liquids (per barrel)                             $44.72         $30.64
      Natural gas (per mcf)                             $4.28          $4.00

    (a)  International production is presented
         utilizing the economic interest method.
    (b)  Includes proportional interests in
         production of equity investees of:
                                Liquids                    --              1
                            Natural gas                    --             15
                 Barrels oil equivalent                    --              4
    (c)  International did not have any hedging
         activities.
    (d)  Excludes gains/losses on derivative
         positions not accounted for as hedges
         and ineffective portions of hedges.



    ADJUSTED AFTER-TAX EARNINGS RECONCILIATION
    (UNAUDITED)                                    1st Q     4th Q     1st Q
    Millions of dollars except per share amounts    2005      2004      2004

    Net earnings                                    $454      $268      $269
    Less: Special items from continuing
     operations
       E&P - North America - U.S.
         Asset sales                                  --        --         6
         Litigation settlement                        --        --        15
       E&P - International - Asia
         Asset sales                                  22        --        --
       Geothermal
         Asset sales                                  --        --        21
       Corporate and Other
         Asset sales                                  --        17        --
         Environmental and litigation
          provisions                                 (11)      (43)      (12)
         Net tax adjustments for
          settlements / assessments                   --        15        --
         Restructuring provisions                     --         1        --
         Oil Insurance Limited retrospective
          liability increase                          --       (21)       --
         Agrium settlement                            --       (14)       --
    Less: Special items from discontinued
     operations
         Gain on asset disposals                       2        --        --
       Adjusted after-tax earnings                  $441      $313      $239
       Adjusted after-tax earnings per
        share (diluted)                            $1.62     $1.17     $0.89



    EBITDAX RECONCILIATION (UNAUDITED)                    For the Three Months
                                                             Ended March 31,
    Millions of dollars except per share amounts           2005          2004
    Net Earnings                                           $454          $269
    Less:
      Special items from continuing operations               11            30
      Special items from discontinued operations              2            --
    Adjusted after-tax earnings                             441           239
    Add-backs to adjusted after-tax earnings:
        Depreciation, depletion and amortization            276           232
        Impairments                                          --             5
        Dry hole costs                                       20            25
        Exploration expenses (including amortization
         of undeveloped leasehold costs)                     38            50
        Current income taxes                                223           141
        Deferred income taxes                                48            23
        Interest expense (a)                                 33            41
          EBITDAX                                        $1,079          $756
    EBITDAX per share (diluted)                           $3.95         $2.73

    (a)  Net of capitalized interest of:                     15            16



Updated: April 2005